What happens when developing countries can no longer grow by simply exploiting their existing comparative advantages in natural resources or cheap labour? Many middle income countries are situated in a sandwiched position between on the one hand competitive pressure from lower-wage countries and on the other hand competition from innovators in the advanced capitalist countries. To climb onwards to higher income levels they must deepen and upgrade their industries.The book is based on the assumption that this transition from low to high value-added activities does not take place 'automatically' as a result of the working of market forces or of the choices and activities of transnational companies. Hence it examines the role of the state in such late-industrial transformation processes in Taiwan and Thailand. Most scholars have dealt with this issue from the perspective of trade and have studied the role of the state in relation to the shift from import-substitution industrialisation to export-oriented industrialisation. The present study is not specifically concerned with trade or trade policy, but with policies related to production structure and technological advance.The study belongs to a group of studies examining the influence of policies and institutions on national economic performance in late industrialising countries in a comparative perspective. It is guided by the proposition that the nature of the politicoinstitutional setting has an important impact on the effectiveness of policy-making, and that the quality of industrial policy has an important bearing on the pace and pattern of industrial growth. In other words, the constraints on dynamic industrial transformation are thought to result in part from policy weaknesses, which in turn are seen as a function of the state's capacity and the nature of politics. Henceforth, the book examines the ability and willingness of the state to design and implement an adequate and coherent set of strategic industrial policies, and the likely impact of such policies on industrial deepening and upgrading in Taiwan and Thailand.