This paper reviews industrial policy in Latin America from the Great Depression to our days. Its purpose is to derive some lessons for what Latin American and Caribbean countries (LAC) should do in this area. It has become clear over the last few years that LAC, if they are to accelerate their growth rates, need more than a good macroeconomic framework and the protection of property rights: they need to be more proactive in transforming their production structures, still too dependent on primary commodity exports or the assembly of final goods from imported components, sectors that are ill-suited to the productive development jumps that have been associated with high growth in the developing world over the past 60 years.
The paper argues that industrial policy Mark I, roughly since the 1940s up to the debt crisis of the early 1980s, which featured import restrictions, the deployment of development banks, and other forms of state activism, was more successful than the credit it receives from the conventional view that has come to dominate academic and policy circles. Nonetheless, it encountered diminishing returns as industrialization proceeded from non-durable consumer goods to more complex products, it did not yield sustained growth in countries with small domestic markets, and it eventually bogged down into a maze of indiscriminate measures with little economic sense. The failure of integration efforts in the region as a whole also accounts for the tendency of the inward-oriented model as a growth engine to stall.