these studies point out the relevance of increased donor assistance to trade facilitation, they do not help delineate the policies and programs that would be most effective in cutting trade costs.<sup>11</sup> In their recent authoritative survey of the state-of-the-art literature on industrial policy, Harrison and Rodríguez-Clare (2010) conclude that empirical evidence on the effectiveness of various forms of industrial policy is scarce. The authors look at the case of East Asian countries where industrial policies based on use of production subsidies, subsidized credit, fiscal incentives, and trade protection to foster particular sectors. From this, they claim that the available evidence does _not_ answer the most important question: what was the effect of these industrial policies relative to the counterfactual situation where such intervention was absent.<sup>12</sup> In sum, there are no studies that can credibly credit industrial policies with bringing about East Asia’s successful industrialization experience. But the authors do make a tentative argument that industrial policies played a role in some countries' growth experiences based on two complementary ideas. First, the composition of a country’s export basket — a tilt towards manufacturing or skill-intensive goods rather than primary products or raw materials — seems to matter for its long-run growth. Second, China’s export basket in 1992 was much more sophisticated than what would be expected given the country’s per capita GDP and that could only be the outcome of its industrial policies (Rodrik, 2006).<sup>13</sup> Harrison and Rodríguez-Clare’s literature survey concludes with an advocacy statement on the type of national trade-related assistance likely to be most successful: that which increases exposure to trade (such as export promotion) in contrast to that which limits trade (such as tariffs or domestic content requirements).<sup>14</sup> The authors also make a statement on the specifics of policy design, where they envision an increasing role for ―soft‖ industrial policies that deal directly with coordination problems, such as those that keep productivity low in existing or emerging sectors. These policies include programs ―to help particular clusters by increasing supply of skilled workers, encouraging technology adoption, and improving regulation and infrastructure‖ (Harrison and Rodríguez-Clare [2010] p. 4112).<sup>15</sup> The problem with this statement is that it has a ―rabbit-out-of-the-hat‖ aspect because the survey includes little supporting evidence. In fact, the absence of evidence for the policy recommendations the survey offers is a reason for our effort to initiate new research on these issues.

> 11 For example, Portugal-Perez and Wilson (2010) estimate the impact of aggregate indicators of "soft" and "hard" infrastructure on the export performance of 101 developing countries over the 2004–2007 period. Their estimates show that trade facilitation reforms - particularly investment in physical infrastructure and regulatory reform to improve the business environment - improve significantly export performance. Moreover, they show that the marginal effect of infrastructure improvements on exports appears to be decreasing with per capita income.

> 12 One empirical approach that has been followed in some studies is to examine whether the sectors that received most support from industrial policies are those that have grown most rapidly; but that approach does not address the counterfactual issue. 13 This finding was based on the measure of sophistication of a country’s exports basket developed by Hausman, Hwang, and Rodrik (2007) constructed using the level of GDP per capita associated with exports of different goods worldwide. 14 The authors make this statement based on extensive cross-country and cross-sector evidence on trade and growth.

> 15 The authors argue that an advantage of such ―soft‖ industrial policies is that they are generally compatible with the multilateral and bilateral trade agreements that developing countries have entered into in the last decades.

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