Title page 1

Contents 1

EXECUTIVE SUMMARY 2

1. INTRODUCTION 4

1.1. Unpacking Industrial Policy: Definitions, Objectives, and Realities 4

1.2. Industrial Policy and the European Union 5

1.3. Comparing Industrial Policies 7

2. THE EU'S INDUSTRIAL POLICY REVIVAL: WHAT SHAPE IS IT TAKING? 8

3. ALTERNATIVE MODELS OF INDUSTRIAL POLICY 12

3.1. The US Inflation Reduction Act (IRA) Model: Tax Incentives to Boost Private Investment 12

3.2. R&D Industrial Policy: Evidence from Switzerland and South Korea 21

4. CONCLUSION: LESSONS FOR EUROPEAN INDUSTRIAL POLICY 37

Tables 21

TABLE 1. MAIN FEATURES OF THE US IRA MODEL 21

TABLE 2. MAIN FEATURES OF THE SOUTH KOREAN MODEL 29

TABLE 3. MAIN FEATURES OF THE SWISS MODEL 32

TABLE 4. MAIN FEATURES OF THE IRISH MODEL 37

TABLE 5. OVERVIEW OF INDUSTRIAL POLICY MODELS 38

Figures 10

FIGURE 1. STATE AID EXPENDITURES AS A SHARE OF GDP BY BROAD CATEGORIES OF STATE AID INSTRUMENTS IN THE EU-27, 2000-2022... 10

FIGURE 2. CUMULATIVE STATE AID EXPENDITURE BY BROAD CATEGORIES OF STATE AID INSTRUMENTS AS A SHARE OF NATIONAL GDP... 11

FIGURE 3. TRENDS IN TOTAL STATE AID (BLUE LINE) AND TOTAL STATE AID EXCLUDING GREEN SUBSIDIES (ORANGE LINE) IN THE EU-27, 2000-2022... 15

FIGURE 4. DISTRIBUTION OF GREEN SUBSIDIES FUNDING BY INDUSTRIAL POLICY INSTRUMENT FOR EU-27 STATE AID (2020-21) AND FOR THE US IRA... 17

FIGURE 5. TOTAL ENERGY TRANSITION INVESTMENT IN THE EU-27 AND THE US, 2021-2024 (BILLIONS OF US DOLLARS) 20

FIGURE 6A AND 6B. BUSINESS R&D SPENDING DISTRIBUTION BY INDUSTRIAL SECTOR FOR THE EU-27, SOUTH KOREA AND SWITZERLAND... 23

FIGURE 7. BREAKDOWN OF STATE AID SUBSIDIES TO THE MANUFACTURING SECTOR BY TECHNOLOGY LEVEL FOR EU-27 MEMBER STATES, 2016-2019... 25

FIGURES 8A AND 8B. IMPLIED TAX SUBSIDY RATES ON R&D EXPENDITURES BY FIRM SIZE AND PROFIT SCENARIO FOR SOUTH KOREA (LEFT)... 28

FIGURES 9A AND 9B. GOVERNMENT BUDGET ALLOCATIONS FOR R&D (LEFT) AND HIGHER EDUCATION EXPENDITURE ON R&D (RIGHT) FOR THE EU-27,... 31

FIGURE 10. THE SHARE OF INWARD FOREIGN DIRECT INVESTMENT (FDI) IN VOLUME AND RELATIVE TO GDP IN THE EU-27 33

FIGURE 11. NET FDI INWARD WITH THE REST OF THE WORLD, BY ECONOMIC ACTIVITY, EU, IRELAND, 2013-2022 35

FIGURE 12. NET FDI INWARD WITH THE REST OF THE WORLD, MANUFACTURING SECTOR, EU AND IRELAND, 2013-2022 36