Success Against All Odds? Determinants of Sectoral Rise and Decline
This article investigates the development over time of the automotive and textile industries post-1989 in four Central European countries in order to identify the key reasons behind sectoral growth or decline. The analysis demonstrates a divergent pattern of sectoral development, one that is in contrast to the perceived initial endowments of the countries and the structural positions of the sectors at the outset of the transition. Comparing the two sectors and individual success stories within them against a broader background of sectoral success and failure allows us to understand and isolate factors that lie behind the high status of the automotive sector by not only regional but also international standards. The article identifies three crucial factors that can be attributed to these outcomes: presence of foreign capital in the sector, active government support, and cooperative strategies among the firms in the sector and among the firms and other institutions in the countries.
Innovative R&D and Optimal Investment under Uncertainty in High-Tech Industries: An Implication for Emerging Economies
In order to continue on the path to convergence with advanced countries, emerging countries need to strengthen their research capabilities. Often they try to do this through the development of strategic industries. The objective of this paper is to contribute to the debate on the effectiveness of policies aimed at the development of strategic industries in emerging economies. The paper develops a three-phase model for product innovation with capital investment under uncertainty to study the investment decisions of a manufacturer in an industry facing a volatile market demand for new inventions. The findings demonstrate the importance of interactions between market structure, a firm's market power and the associated cost of adjustment. The paper draws out implications for emerging economies with regard to policies striving to develop strategic industries in sectors such as semiconductors and information technology.