Introduction

That the notion of industrial policy as a mechanism for promoting international competitiveness has enjoyed considerable attention in both the popular press and academic circles is hardly surprising. Along with the increased globalisation of markets has come an increased consciousness about the manner in which market structure and firm conduct is inextricably linked with performance, not only in domestic markets, but also internationally (Caves, 1989; Hughes, 1986 and 1991a).

While the relationship between various instruments of industrial policy and the subsequent impact on international competitiveness has been the focus of research for the most developed nations, such as the United States (Tyson and Zysman, 1983; Baldwin, 1988), the Federal Republic of Germany (Stille, 1990), and Japan (Audretsch, 1988), as well as for Europe as a whole (Geroski, 1990; Neumann, 1990), the case of Eastern Europe remains largely unexplored. In fact, because of the extent of planning and control that was implemented throughout the Eastern European countries, they provide an important example for evaluating the success of certain types of industrial policies. Thus, the purpose of this chapter is to describe the manner in which industrial policies influenced the industrial structure in Eastern Europe during the 1980s and to examine the impact these policies had on the area's subsequent competitiveness in international markets. Based on the economic results from four decades of Eastern European industrial policy, several broad suggestions for the appropriate stance of industrial policy in the newly reformed economies are provided.