Recent data on industrial policies
In this paper Evenett et al. introduce IMF’s new monitoring exercise called the New Industrial Policy Observatory (NIPO) with the aim of capturing industrial policy developments. A first look at the data highlights that:
- Industrial policies have regained prominence in both advanced and developing economies, driven by various factors including geopolitical tensions, technological changes, and climate concerns.
- Advanced Economies (AEs) are by far the most frequent users of such policies in 2023 as they accounted for 70.9 percent and emerging markets and developing economies (EMDEs) for 29.1 percent of trade distorting “new” industrial policies (NIPs) to date. The measures are also concentrated among certain key players. China, the European Union, and the United States account for 47.7 percent of trade distorting measures in our database.
- For both AEs and EMDEs, the most frequently used policy instruments are subsidies to domestic producers. However, the second most frequent type of policies in AEs are export incentives, followed by other localization policies such as public procurement and investment controls, whereas in EMDEs, import barriers are the second most frequent group, followed by localization policies. The use of these policies varies by jurisdiction.
- The predominant stated NIP motive in 2023 has been strategic competitiveness (37.0%), followed by climate-related concerns (28.1%), supply chain resilience (15.2%), and geopolitical concerns and national security (19.7%).
The Return of Industrial Policy in Data
Authors:Simon Evenett, Adam Jakubik, Fernando Martín, Michele Ruta
From: IMF
A more nuanced view of industrial policy
In this paper, Juhász et al. provide a comprehensive review of recent empirical research on industrial policy and its effectiveness. Here are the main findings:
- There is a strong theoretical case for industrial policy based on externalities, coordination failures, and the need for activity-specific public inputs. However, practical objections remain around information shortcomings and political capture.
- New empirical studies using rigorous identification strategies have generally found more positive effects of industrial policy compared to earlier correlational studies. Key findings include: a) Infant industry protection can lead to long-term changes in industrial structure and competitiveness; b) Large-scale public R&D efforts had significant positive local economic impacts; c) Place-based industrial policies can effectively boost manufacturing activity in targeted regions.
- The East Asian experience with industrial policy is being re-evaluated in light of new empirical evidence. While results are mixed, some policies appear to have been effective in driving structural change and industrial upgrading.
- Modern industrial policy practice is evolving beyond traditional top-down regulation models. Successful approaches often involve: a) Iterative public-private collaboration rather than rigid top-down planning; b) Providing customized public services and inputs rather than just financial subsidies; c) Expanding focus beyond manufacturing to include productivity-enhancing policies for services.
The paper argues that research and policy discussions should move from debating whether industrial policy should be used to examining how it can be implemented most effectively.
The New Economics of Industrial Policy
Authors: Réka Juhász, Nathan Lane, Dani Rodrik
From: University of British Columbia, University of Oxford, Harvard University
Industrial policy and welfare consequences
In this paper, Bertelme et al. analyze the welfare gains from industrial policy. The authors’ model characterizes optimal industrial policy and its welfare consequences as a function of sector-level scale elasticities. They use data from the OECD’s Inter-Country Input-Output (ICIO) tables, which document bilateral trade among 61 major exporters and importers, to estimate sector level elasticities. Their findings include:
- There are significant economies of scale across manufacturing sectors (there is substantial heterogeneity across sectors), but the gains from optimal industrial policy are relatively modest for most countries. More specifically, the gains from optimal trade policy (1.46% on average) are generally larger than those from industrial policy (1.08% on average) in the baseline model.
- The gains from industrial policy tend to be larger for smaller, more open economies. This is because more open economies can more easily reallocate labor across sectors in response to subsidies.
- When the model is extended to include physical capital and input-output linkages, the estimated gains from industrial policy increase substantially, to an average of 4.06% of GDP.
- While there are gains from industrial policy, they are not transformative for most economies, even among the most open ones. This reflects the fact that little reallocation across sectors actually takes place in response to the optimal industrial policy, even in the most open economies.
The Textbook Case for Industrial Policy: Theory Meets Data
Authors: Dominick Bartelme, Arnaud Costinot, Dave Donaldson, Andres Rodriguez-Clare
From: University of Michigan, MIT, UC Berkeley
