Industrial policy

Industrial policy is proactive government-led encouragement and development of specific strategic industries for the growth of all or part of the economy, especially in absence of sufficient private sector investments and participation. ^[1]^[2]^[3]^[4] Historically, it has often focused on the manufacturing sector, militarily important sectors, or on fostering an advantage in new technologies. In industrial policy, the government takes measures "aimed at improving the competitiveness and capabilities of domestic firms and promoting structural transformation".^[5] A country's infrastructure (including transportation, telecommunications and energy industry) is a major enabler of industrial policy.^[6]

Industrial policies are interventionist measures typical of mixed economy countries. Many types of industrial policies contain common elements with other types of interventionist practices such as trade policy. Industrial policy is usually seen as separate from broader macroeconomic policies, such as tightening credit and taxing capital gains. Traditional examples of industrial policy include subsidizing export industries and import-substitution-industrialization (ISI), where trade barriers are temporarily imposed on some key sectors, such as manufacturing.^[7] By selectively protecting certain industries, these industries are given time to learn (learning by doing) and upgrade. Once competitive enough, these restrictions are lifted to expose the selected industries to the international market.^[8] More contemporary industrial policies include measures such as support for linkages between firms and support for upstream technologies.^[9]

Economists have debated the role of industrial policy in fostering industrialization and economic development.^[1]^[10]^[11] They have also debated concerns that industrial policy threatens free trade and international cooperation.^[12]

^ ^a ^b Juhász, Réka; Steinwender, Claudia (2024). "Industrial Policy and the Great Divergence". Annual Review of Economics. doi:10.1146/annurev-economics-091523-044259. hdl:10419/282363. ISSN 1941-1383.
^ Graham 1994, p. 3.
^ Bingham 1998, p. 21.
^ Rodrik 2004, p. 2. Rodrik uses the term in a more extended fashion, such as to encompass "non-traditional activities in agriculture or services. There is no evidence that the types of market failures that call for industrial policy are located predominantly in industry".
^ UNCTAD & UNIDO 2011, p. 34.
^ For the relations between industrial policy and infrastructure, see Koh, Jae Myong (2018) Green Infrastructure Financing: Institutional Investors, PPPs and Bankable Projects, Palgrave Macmillan, pp. 12–51.
^ Krugman 1987.
^ Gereffi & Wyman 1990.
^ Wear, Andrew (2017-01-24). "Industry policy emerges from globalisation resurgent and more important than ever". The Mandarin. Retrieved 26 January 2017.
^ Juhász, Réka; Lane, Nathan; Rodrik, Dani (2024). "The New Economics of Industrial Policy". Annual Review of Economics. doi:10.1146/annurev-economics-081023-024638. ISSN 1941-1383.
^ Bartelme, Dominick; Costinot, Arnaud; Donaldson, Dave; Rodríguez-Clare, Andrés (2025). "The Textbook Case for Industrial Policy: Theory Meets Data". Journal of Political Economy. doi:10.1086/734129. ISSN 0022-3808.
^ Bown, Chad P. (2024). "Modern Industrial Policy and the World Trade Organization". Annual Review of Economics. doi:10.1146/annurev-economics-100223-041958. ISSN 1941-1383.

[:0-1] Juhász, Réka; Steinwender, Claudia (2024). "Industrial Policy and the Great Divergence". Annual Review of Economics. doi:10.1146/annurev-economics-091523-044259. hdl:10419/282363. ISSN 1941-1383.

[FOOTNOTEGraham1994[httpsbooksgooglecombooksidMy9sL1iKQm8CpgPA3_3]-2] Graham 1994, p. 3.

[FOOTNOTEBingham1998[httpsbooksgooglecombooksidnyF0zNh68ooCpgPA21_21]-3] Bingham 1998, p. 21.

[FOOTNOTERodrik20042._Rodrik_uses_the_term_in_a_more_extended_fashion,_such_as_to_encompass_"non-traditional_activities_in_agriculture_or_services._There_is_no_evidence_that_the_types_of_market_failures_that_call_for_industrial_policy_are_located_predominantly_in_industry"-4] Rodrik 2004, p. 2. Rodrik uses the term in a more extended fashion, such as to encompass "non-traditional activities in agriculture or services. There is no evidence that the types of market failures that call for industrial policy are located predominantly in industry".

[FOOTNOTEUNCTADUNIDO201134-5] UNCTAD & UNIDO 2011, p. 34.

[6] For the relations between industrial policy and infrastructure, see Koh, Jae Myong (2018) Green Infrastructure Financing: Institutional Investors, PPPs and Bankable Projects, Palgrave Macmillan, pp. 12–51.

[FOOTNOTEKrugman1987-7] Krugman 1987.

[FOOTNOTEGereffiWyman1990-8] Gereffi & Wyman 1990.

[:1-9] Wear, Andrew (2017-01-24). "Industry policy emerges from globalisation resurgent and more important than ever". The Mandarin. Retrieved 26 January 2017.

[10] Juhász, Réka; Lane, Nathan; Rodrik, Dani (2024). "The New Economics of Industrial Policy". Annual Review of Economics. doi:10.1146/annurev-economics-081023-024638. ISSN 1941-1383.

[:2-11] Bartelme, Dominick; Costinot, Arnaud; Donaldson, Dave; Rodríguez-Clare, Andrés (2025). "The Textbook Case for Industrial Policy: Theory Meets Data". Journal of Political Economy. doi:10.1086/734129. ISSN 0022-3808.

[12] Bown, Chad P. (2024). "Modern Industrial Policy and the World Trade Organization". Annual Review of Economics. doi:10.1146/annurev-economics-100223-041958. ISSN 1941-1383.

[1]

[2]

[3]

[4]

[5]

[6]

[7]

[8]

[9]

[10]

[11]

[12]