Incentives, infrastructure and institutions: perspectives on industrialization and technical change in late-developing nations

The current paper explores the role of incentives, infrastructure, and institutions in late-industrializing countries. We argue that all three dimensions are critical to understand differences in technological development and industrial trajectories across countries, because they shape government policies and firm strategies in terms of exports, subcontracting, and technology acquisition, among others. Moreover, we explain how recent insights in the theory of economic growth may be used to understand the incentive and infrastructure dimensions of development, even at a very micro level, but fall short of addressing institutions, a dimension our research has shown to be as critical. The paper analyzes these relationships through an in-depth analysis of the evolution of the auto industry in Taiwan and Mexico, characterizing the three dimensions and associated policies as well as market and technology outcomes. The key implication for research is that advancing growth theory, so that we may have a better understanding of late industrialization, requires a deeper micro research on the development patterns of these countries.