Foreword xi

Acknowledgments xv

About the Authors xvii

Overview xix

Abbreviations xxix

1 What Is Industrial Policy? 1

Three categories of industrial policy tools, some of which are second choice 3

A typology of feasible industrial policy tools, by country characteristics 10

Concerns about industrial policy for development 17

Deciding when to pursue industrial policy for development 22

Notes 24

References 25

2 Who Does Industrial Policy? 29

Stylized facts and differences from existing literature 29

Explaining countries’ policy choices 42

Notes 45

References 47

3 How to Do Industrial Policy? 49

Tailored public inputs 52

Industrial parks solve coordination failures and are feasible in all countries and conducive to private sector collaboration. 52

Skills development, market access assistance, and quality infrastructure solve information asymmetries but require government bandwidth. 55

Market incentives 61

Production subsidies, depending on information available and context, may be best tied to either output, wages, or investment. 61

Innovation subsidies are effective when technology adoption or invention is low and have low risk of crowding out. 68

Public procurement can incentivize quality improvement and innovation by local suppliers. 72

Import tariffs can accelerate industry growth when there are resources and a large local market. 73

Technology transfer quid pro quo is effective when licenses are not available, but only in large markets. 75

Commodity export bans and local content requirements shape downstream and upstream markets. 78

Consumer demand subsidies are difficult to target to the most responsive consumers. 85

Macroeconomic interventions 86

Competitive exchange rate devaluation is feasible only when other fundamentals are in place, and it risks triggering retaliation. 86

Unwinding industrial policy tools 88

Automatic termination rules may end policies too early. 88

Pro-competition industrial policy is open to trade. 92

Notes 94

References 104

4 Which Activities to Target? 123

A framework to identify strategic business activities for development 124

Considerations when articulating industrial strategy 136

Complementary investments and reforms to build comparative advantage 140

Notes 145

References 147

5 How to Get the Institutions Right? 151

Technocrats insulated from politics 152

New optimism about industrial policy institutions 154

Government delivery units for strategy setting and high-level oversight 156

Smaller implementing agencies that can have big impacts 158

Notes 175

References 179

6 Applications with Narrow Industrial Policy Objectives 185

Industrial policies for foreign exchange 186

Industrial policies to create jobs 190

Green industrial policies 197

Industrial policies for resilience and economic security 205

Notes 209

References 212

7 Policy Brief 219

Which activities to target? Benefits, opportunity, feasibility, and an industrial strategy portfolio approach 219

How to do industrial policy? Guidance to choose the mix of policy tools 223

How to get the institutions right? 228

Appendix A: Statistics for Discriminatory Policies, Import Tariffs, and Subsidies, by Economy 233