1
THE NEW ECONOMICS OF INDUSTRIAL POLICY
Réka Juhász, Nathan Lane, and Dani Rodrik
1
August 2023
ABSTRACT
We discuss the considerable literature that has developed in recent years providing rigorous evidence on how
-evaluate the East Asian experience with
-
indust
1
Annual Review of Economics.
2
Réka Juhász, Nathan Lane, and Dani Rodrik
1. Introduc�on
ies
industrial policy. it, even when they
2
n recent years, as
-
–
-
variety d the
world. A considerable literature has developed in recent years providing rigorous evidence on how
industrial policy really works and how
s.
industrial policy. It enables
, shedding light rather than heat.
he outline this paper a
providing o
cal
c
current industrial policies. Several key conclusionno
-
-or
policies than de
policy since, by design, -
2
, protected U.S. steel,
3
between the -
-- and anything in between – as these cases are
the d
The work we
industrial policy elicited the desired behavioral response in .
(e.g., in ies; large-
-
and
recent papers, paying
i produces
ese papers tend to typically
-
.
evisits the industrial policy experience in East Asia.
and desirability ial policy. Early literature on the East Asian
te
re nuanced picture.
disaggregated ddiversity
It shows that industrial policy
driving structural change in countries such as Japan, South Korea, and China. But it also suggests that it is
.
Nevertheless, . As we
lessons to be drawn. T
,
prevailing elsewhere, are a
precursor
policy.
we suggest
-
cing
-
2. The industrial policy debate: defini�ons, ra�onales, and cri�ques
2.1. Defini�ons
X but not Y
– -ended and
, place-based policies
(
induFernández-Arias
–
-sector actors –
innovators, investors – to a
public-
councils or business-, also counts as industrial policy.
tricted to ex-ante eligibility criteria. For
-post
behav
2.2. Ra�onales
-
-
re related to well-
-by-
-
– e.g., --
-iddle-
A when good B is also produced and not
otherwise. B as well. In one
tuck in what is a sub-
-
-the- -
the road transport network. Dep
-- to select
best handled by Pigovian
-
-
2.3. The cri�que
controversy over industrial policy revolves not arou– which are generally well-
–
-
-
ei
their case. For proponents,
– where
–
-
as the Franco-
that East Asian countrie
.
-
7
-- even ex post --
ents
-
Fundacion Chile – –
ventures.
itably develop. Indeed,
ing evident
. We will return
.
Beyond there .
. (2021 reconsiders the textbook Pigovian
. Although the authors sizeable external
across sectors, tsuggests e
gains. ,
input-output linkages produces larger aggregate
. Related work by Laskharipour and Lugovsky uses a
highlight another - unilateral
--trade losses. industrial policies, on the other hand,
large gains.
3
Together, this work illustrates how new theory-can provide a richer analysis
either-or debate. Thindustrial
3
See also Itskhoki and Moll (2019ies in
2.4. Where does this leave us?
One can list e, h
, ,
, and s. In all these areas, it is
-
ut policy discussions in these areas
whether should do it, but on how. The debates revolve around
.
3. What do we know about the prac�ce of industrial policy?
-
3.1. Dilemmas of measurement
--
industry."
subsPlan on
Adjusng and Revitalizing the Shipbuilding Industry
The
9
to observe than others.
A re
-
,
Maggi,
policy levers potenally used as industrial policy, only a subset will actually industrial policy.
s
1;
Harrison and Rodriguez-
in the literature.
I. Indeed, this was certainly
ial
below that -oriented
--
Asian Tiger ebelies
-
nspicuously
2
and Rodriguez-
controls on FDI as tools y in the post-
DiPippo et al.
10
Finally, g
harder.
3.2. Accoun�ng for contemporary industrial policy prac�ce
industrial policy and provides
been launched
Mazzocco and Kennedy 2022; Criscuolo, Lalanne, and Diaz 2022; Hanson and Rodrik 2023A central
Center for Strategic and Internaonal Studies (DiPippo, Mazzocco
cy, versus 0.3-
arge- Lalanne, and Diaz
-using
expenditure data
-based policies, tracking single-
Together, these
2
processing to -industry-a publicly
available policy inventory (the Global Trade Alert database or GTA; .
7
objecves
To illustrate the approach, In
other (non-
7
used by trade scholars. Thus, -
11
plan is laid out to boost growth in the Chinese baery industry
[...]
Juhász et al. (2022
policy descrip
10
-
exclusive cat,
data correctly (the accuracy
easily interpretable results. Table 3.1
export,boost,research,,
technology
t
,,
B
This text-
Plan on Adjusng and Revitalizing the
Shipbuilding Industry
,
-
9
-
the--based
sectoral policcan both count as one policy in the
n trade policy has illustrated how count-based
-
9
12
10
3.3. A first look at interna�onal industrial policy prac�ce
2
11
First, industrial policy has indeed returned and is on
the rise. Figure 3.1
increase in .
,
3.2 plots
and region.
ustrial
where Juhász et al. (2022
and Taiwan
-
0.3-
current surge in industrial policy spending (e.g., post CHIPS and IRA acts
3.
-
-arisons using a
count-
3.
and
-
port-
Figure 3.3
--, and low-
10
See recent gravity-Heid
11
. Notes on v2 are available at
.
13
-is
tool in low-Developing countries
Harding, Javorcik, and Maggioni
.33
23.
plots the top 10 sectors targeted by industrial policy in high--, and low-
clear
-
lower-
-
-
Figure 3.
-
industrial policies. Food and agriculture are also targeted by industrial policy in high-
In high-
, includes -digit sector
--
eleven - and low-
-
y-two percent (thirty-one
--
ng high-
--perhaps
study, Juhász et al. (2022
In
DiPippo Criscuolo, Lalanne, and Díaz (2022
3.
-scale
industrial polWe
ay
4. Industrial policy meets causal iden�fica�on
-
trial policy. We
12
Rather, our goal is to evaluate
by designrandomly in
-targeted units are generally unlikely to serve as credible
-
discuss the issues that arise with
4.1. The empirical challenge of evalua�ng industrial policy
g
12
ellent
recent reviews. More generally, Harrison and Rodriguez-
() =
(
1
)
,
where A
g A
g A
The , the
s
[
0,1
]
between private and social returns to (1 )(1 ).
(), where
(
)
s (
(
0
)
= 0,
(
)
> 0,
and
(
)
> 0
(, , ) =
(
1 (1 )
)
().
The socially-
(
, ,
)
= () = 0.
= 1
(
)
and its
convexity ensures that
< 1.
-()
-()
-(
).
(; , )
and po
max
(
; ,
)
=
(
, ,
)
+ ()
-
(
, ,
)
+
(
)
= [
(
)
] +
(
)
= 0.
d whether industrial policy works. Ideally,
•
-e
•
• -
.
, , and –
gs
4.2. Conceptual issues with early evidence on industrial policy
-
-
e even in countries like
Japan and South Korea – countries evidence suggested industrial
policies had been put to good use.
nous,
-seeking
< 0 and
> 0. In words,
and
-se
-
=
(
)
> 0,
=
(
1
)
< 0
=
< 1
17
-
rely rent-seeking
-enhancing in this case in the sense
that an ex-
= 0 would leave
For
< 0 and
< 0
capacity. This would produce a cross-
–
--- and anything in
between --
policy.
4.3. Challenges for causal iden�fica�on
exercise whereby the researcher is able to
as
=
+
and g. Since
and g,
-
-
be dri-seeking, and these results do not speak at all to these
analysis and
-
13
4.4. The empirical path taken
The preceding
ndustrial policy is not
industrial
19
th
ered on whether
ought to do industrial policy.
whether
- >
0“economic mechanism,”
13
In the Criscuolo et al. eligibility
regions (
in other instances. Another
the eligibility criteria will be s
.
19
was i
and –
i-ies
average industry, or a
hink > 0
iscussed in s
2
eval
industry.
over the
-
between treated and non--
and ho
-
the desired behavioral response. That is, do the targeted s
vity in this way.
4.5. New evidence on sectoral industrial policies
sectoral industrial policy based on a thin,
in s3 –
Rodrik, 2001; Harrison and Rodriguez-
relies on ep
-
cross-Lane
20
2020-
The recent literature has
holds.
under
industrial policy , there is
no industrial policy lever at all. Instead,
-
all
ed across the
–
securi-
s
ed
hanged the long-
within -
--
(in
– the globa
21
thro
tly,
-by-
provide
-up
produce
-20th
century.
3
, their results suggest that, unlike in
-
such as
- (as
in the cost-and Rodrik,
eated units
These papers suggest
relevant in the real-
drive in South-
targeted sectors.
in
22
-Korea, , was
-
the
the result in
-
it is less clear wh
.S.
policy at the plant or
choices in each case.
4.6. New evidence on public R&D policies
Much like
-led R&D
-
how
- -understood public R&D
--back. The
pro
rgin (Mazzucato 2013, 2021;
These large- -
gentail in
23
r and Whalley 2023
2023
-3
would receive support -
-in-
Each sizeable and long--3
-based growth that
long-
Kantor and Whalley (2023-
-
1. both
These are which
-.
3
though Kantor and Whalley (2023ue
public R&D creates technological spillovers to the private sector. This
-
perceived ability to succeed. Indeed, Kantor and Whalley (2023
zed in pre-3
-
ere
current work is
-
understand how.
– cult to sustain consistently.
3-
-held
-
-
even in areas that
4.7. New evidence on place-based industrial policy
-based industrial policies. Broadly speaking, place-
ies
also be a trade-
-
The literature on place-based policy in general is well-
place-
try
-based industrial policies.
between 1939-
.S.
als.
– skill-intensive industries in which the
country -share research design to study the local
US, places
--based
-based structural
-
to high-
e papers is their strong
ineligible areas.
.
red behavioral
It is interes-based
-in-
g
n lagging and
show that one
4.8. Taking stock
There are stron-
-
,-
27
to
crucial, but i
to play.
5. Industrial policy and the East Asian miracle: new empirics
ng,
the -
Within
that
. New research, however, is changing this picture. This
reviews policy, considering
the highlighted in
thought draw East Asia. On the one hand, social science
scholars see industrial policies as integral to the experience.
,
the postwar period.
While this literature es
to this view
2012, on the other hand,
has produced
; Lall 199
The new
- Early regression
-level
industrial policy use
(e.g., .
17
. However, these early
s . In addressing these
countries have achieved high-
the
17
issues, new provides diverse episode—
East Asia is a heterogeneous region, city-
-stability and entrepôt trade
Chung-h
dindustrial policies were varied
diversity
policy experience
experience by using higher- data and
5.1 New empirical research on East Asian industrial policy
—and
controversial—industrial policy pursued by President Park Chung-. New research
has updated earlier
the treated vs. non-treated industries and ound that these policies increased short and long-run growth
in treated HCI industries—
weak, plant a-
.
-up work using the
a
have
. Like Lee at al.
(202
approach, ing
-
also , and argue the
HCI policy led to considerable long-
controversial episode, ng
The early erature on East Asia argued that industrial policies to target the appropriate
did not possess to
Yet, recent work this issue, using a network
knowledge
are those where
-output linkages. Sectindirectly
Even
29
-
enhancing.
In
-
Under -output
corr
the input-output network. Moreover, those sectors
networks by Liu and Ma (2023es a
superior than in the U.S. ,
like König et al. 2019, has considered how
.
In the work above
the
considerAs well,
dynamic
19
There are
the Japanese
explains this noted that MITI and
. This was a well-
Japan(Uriu by
Using and TFP, revisits the
Japanese industrial policy Accordingly, the authors
the sunset and other sectors covered by earlier work (see Beason and Weinstein
.
and deploy higher
. Idetails not only help to interpret earlier episodes, but also
help parse and contextualize recent ones,
19
Work by Pons-
30
For instance, FDI is
9postwar
-directed the and the
tool
state-E-
centered policie
-as-
-Clare 2010
an industrial policy (Thun 200
tanew work by explores
Chinese quid-pro-quo style FDI,
these policies, and have been a potent
200
Their results point to
—e spillovers are driven
-
-pro-
-by 0.9-between
ir scale and
notoriety.
20
Aghion et al. (201-level data to consid
results point to Chinese shipbuilding
points
buildings
.
as sh
-
, unlike the industrial
20
S2019 by DiPippo et al. 2022.
31
5.2. Is this �me different? East Asia and contemporary industrial policy
do yield
Likewise, t
adapted to
(e.g., . Rather than being id
policy.
during
kewise, Japan
;
export-. Juhász et al. (2022
Such were across East Asian
-
6. New thinking on (and context of) industrial policy
-
-class
-
-
een
– which is highly capital-
and skill-intensive --
–
6.1. Itera�ve public-private collabora�on versus top-down regula�on
32
-
and rent-
that this is possible
-
uch
s or
-
a
countries have
this is not the case.
O
technology vis-à--
in energy (ARPA--
The central in the ARPA is the director, who is not a career
but a or industry who is recruited a three-year The
director works in a designates area and selects a to support with grants. The
selection process and the associated are designed intense
33
consultations and workshops involving the director and the relevant stakeholders
researchers and The director works closely with the grantees as the
reviewing and revising targets as needed. are to provide progress reports
which the agency rates according to a light that a critical and
are at risk receive a that a but can be expected to recover get a
and that are on track to reach their goals get a with red ratings call
intense supervision and scrutiny on the part directors (in the site visits,
calls, and written analyses pr and possible putting the
back on track the director can issue a letter warning the possibility
These criteria are coupled with considerable ic
like else in these are they are added or deleted in nearly
the budgets can be expanded or decreased in light In short,
the is based
on continuous iterative collaboration with the private sector, and
the hands- -length, strict ex-ante-rules regulatory approach by
(Azoulay et al., Rodrik and Sabel, 2022; see also Sabel and 2022, a general discussion
what the authors call in the green
Mesas Ejecuvas
-
-private dialog
--ended
r-level
-
-
coordina
6.2. Customized public services and inputs instead versus subsidies
-
e work
t would
local
--
or likely investors. Otherwise the resources
-private dialog and
y.
6.3. Manufacturing versus services
– – are
gen
-
-
capital- and skill-y lower-
-
-
– i.e., those that act as career ladders i
ap-
-
-
-private
sts have
Tables
Table 3.1. Words associated with industrial policies
Feature Names
Coefficient Size
export
support
industry
energy
research
3.3
boost
3.3
technology
3.1
Notes: This table lists the ten features most predicve of industrial policy from a text-based, binomial logisc regression, and
correspond to individual tokens. The text of these features are reported in the le column. The right column reports the
esmated coefficients. Source: Juhász et al. 2022 (data update July, 2023).
37
Figures
Panel A
Panel B
Notes: Panel A plots the total number of industrial policy intervenons by year globally; panel B plots the share of industrial
policy intervenons among all intervenons in the GTA. Following guidance from GTA, only policies entered in the same calendar
year are included to ensure comparability across me. See the July, 2023 data update from Juhász et al. for details. Source:
Juhász et al. 2022 (data update July, 2023
Figure 3.2. In10-2022
Panel A
Notes: Panel A plots the total number of industrial policy intervenons (2010-2022) by income quinle based on GDP per capita
in 2010. Quinle 5 is the highest income group, quinle 1 is the lowest income group. Panel B plots the share of industrial policy
intervenons (2010-2022) by region. See the July, 2023 data update from Juhász et al. for details. Source: Juhász et al. 2022
(data update July, 2023).
39
type
Notes: The figure plots the share of industrial policies accounted for by each measure type within a parcular income group (top 10 measures reported). Income quinles based on
GDP per capita in 2010. Quinle 5 is the highest income group, quinle 1 is the lowest income group. See the July, 2023 data update from Juhász et al. for details. Source: Juhász
et al. 2022 (data update July, 2023)
Notes: Share of industrial policy intervenons targeng a specific HS 2 digit sector by income quinles (top 10 sectors reported, an industrial policy intervenon can target
mulple HS 2 sectors). Income quinles based on GDP per capita in 2010. Quinle 5 is the highest income group, quinle 1 is the lowest income group. See the July, 2023 data
update from Juhász et al. for details. Source: Juhász et al. 2022 (data update July, 2023)
Autonomy
low
high
Embeddedness
low
predatory state
Weberian regulatory
state
high
clientelist state
Source
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