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See my posting below What Dani Rodrik Taught Me About Industrial Policy for a description on what allocative inefficiency is, where it comes from, and how industrial policy can improve resource allocation to create economic growth.

I felt it was important to make a couple points regarding the implication for overall allocative efficiency of policies justified by efficiency gains in specific sectors.  My last post explains how it might be easy to always justify government intervention for sect...
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Per my last post, the key takeaway from Dani’s industrial policy teachings is not to target sectors, but specific market or government failures.  Only if these failures are present is government intervention justified.  The big ones we should be looking out for are learning externalities and coordination failures.

But…it seems one can always justify learning externalities, whether in the form of learning by doing or learning about costs.  I didn’t get into these on the last posts, but le...
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I just took my final today for my Economic Development: Theory and Evidence course, taught by Dani Rodrik and Rohini Pande.  So if there’s ever a day to post on what I’ve learned about industrial policy from Dani, today is definitely the day.

The first fundamental welfare theorem of economics tells us that a competitive equilibrium is efficient, provided markets work perfectly.  This is to say the marginal product of labor and capital are equalized across the economy, otherwise resources c...
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