I thank Professor Wade for his response to my comments. There is much agreement between us on the importance for development economists to rethink industrial policy, and to come up with a framework that adequately describes the distribution of roles between states and markets in well-functioning economies. His elegant conceptualization of the strategy used by East Asian economies to address market failures is an important component of today’s knowledge of the political economy of development. His discussion of the key issues associated with the risk of government failuresdeserves a few clarifications on my part.
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