Industrial Policy for Development: Approaches in the 21st Century

Amidst slower global growth, a shifting labor market, and rising protectionism, governments around the world are increasingly turning to a once controversial policy. Industrial policy—the range of policy tools governments use to shape what an economy produces, rather than leaving it to markets alone—is back with a vengeance. Contrary to recent headlines, advanced economies are not the heaviest users of industrial policy. As this report documents, developing economies use it more intensively. New data show that total business subsidies among upper-middle-income economies now average 4.2 percent of GDP—the highest on record. Middle-income economies have higher average import tariffs and more dispersion of tariffs across individual products compared to high-income economies—evidence of stronger targeted protection of certain industries. A review of the latest national development plans across 183 economies finds that low-income economies target growth in 13 industries on average, more than twice the number in high-income economies. This report offers the first comprehensive guide to industrial policy for development in the 21st century, distinctive in four respects: it covers 15 policy tools—well beyond the existing literature's focus on tariffs and subsidies; it provides practical guidance on design and implementation, including how to target industries and design effective institutions; it draws on new evidence from more than 60 economies; and it identifies targeted approaches for governments using industrial policy to pursue specific goals, from earning foreign exchange and creating jobs to reducing pollution and strengthening security and resilience.