Political Capacity and the Choice of
Follow-on Industrialization Strategies
The conditions under which the type of political regime affects a government's policy choices and a country's ability to successfully implement structural change are largely dependent upon its political capacity and its ability to restrict state-generated rents. So far no consideration has been given as to how differences in industrialization policy may affect a country's ability to implement adjustment policies. This is because the decision to change industrialization strategies constitutes a very robust form of adjustment in its own right. The type of industrialization policy adopted may create very significant differences in the kinds of economic inefficiencies and distortions that are byproducts of that strategy. The prevalence of various kinds of inefficiencies and distortions inevitably affects a government's ability to carry out additional adjustment measures in response to shocks from the global economy.
All the countries in this sample 1 began with basically the same "primary" import-substitution industrialization policy. 2 This strategy emphasized domestic production of previously imported nondurable consumer goods. At the end of the "easy" or "horizontal" importsubstitution phases, the countries of East Asia and Latin America adopted significantly different policies. Japan, Korea, Singapore and Taiwan shifted to a strategy of "export substitution" and later to export promotion which required their manufactures to become internationally competitive. Latin American countries shifted toward "secondary import substitution" and continued to produce mainly for a protected domestic market. Over time the East Asian countries have exhibited a fairly monotonic economic liberalization process, sustained economic growth