Industrial policy (IP) is government’s support to specific economic sectors and regions. There is plenty of evidence demonstrating that IP has played an essential role in economic development of current high-income countries, successful catch-up countries such as the “Asian Tigers”, and thriving developing countries such as Chile and Brazil.
I support the idea that governments of developing countries should complement their aims for macroeconomic stability and a business enabling environment (BEE) with active intervention and cooperation with business and civil societies in developing strategic value chains, clusters, and technology parks in agriculture, services, manufacturing, and other key sectors. In short, through the strategic implementation of IP. Collectively, macroeconomic stability, BEE and IP can become a virtuous triangle to improve a country’s likelihood of increasing its productivity, transforming its productive base, growing employment, reducing poverty, and attaining higher levels of economic prosperity for its people.
However, many countries have tried IP and not all have been successful. Although there is no single recipe for success, adequate industrial policy conceptualization and implementation must be driven by end-markets demand and requires long-term political commitment, public-private cooperation, clear financing schemes, and competent teams of implementers in public and private sectors.
In the next few posts on this issue, I’ll explore examples of IP’s impact in economic development, the criteria countries use to decide sectors to support, and what sort of instruments work better under different conditions. I will also look at the arguments against industrial policy application, the constraints to its application posed by free trade agreements, and leave some more questions to keep exploring this policy together. Do you have any thoughts on the pros, cons, and complexities of implementing industrial policy in your country? Please share!