State Policies and Domestic Demand As Drivers of Industrial Upgrading. the Experience of the Chinese LED Lighting Industry.

During the last five years, China has emerged as one of the leading production sites in the emerging LED lighting industry which is about to replace most traditional light sources. Chinese companies managed to expand in a sector which is characterised by a fast pace of technological development despite an initial (and ongoing) technological lag in relation to companies in the West and in East Asian economies such as Korea and Taiwan.

Our contribution provides evidence about the underlying reasons for the successful development of the Chinese industry. We show that upgrading on a sectoral level is facilitated by proactive state policies and expanding domestic markets. Government initiatives provoked overinvestment, but eventually led to the emergence of competitive domestic firms. Simultaneously, firms benefited from a growing domestic market on which they outcompeted foreign competitors in mid-price segments. Our results indicate that the role of state institutions and domestic markets should be fully acknowledged in theories about industrial upgrading in latecomer economies.