Working Paper: CEPR ID: DP18405
Authors: Rka Juhász; Nathaniel Lane; Dani Rodrik
Abstract: We discuss the considerable literature that has developed in recent years providing rigorous evidence on how industrial policies work. This literature is a significant improvement over the earlier generation of empirical work, which was largely correlational and marred by interpretational problems. On the whole, the recent crop of papers offers a more positive take on industrial policy. We review the standard rationales and critiques of industrial policy and provide a broad overview of new empirical approaches to measurement. We discuss how the recent literature, paying close attention to measurement, causal inference, and economic structure, is offering a nuanced and contextual understanding of the effects of industrial policy. We re-evaluate the East Asian experience with industrial policy in light of recent results. Finally, we conclude by reviewing how industrial policy is being reshaped by a new understanding of governance, a richer set of policy instruments beyond subsidies, and the reality of de-industrialization.
Keywords: industrial policy
JEL Codes: L52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Industrial policies (O25) | increased output in targeted sectors (O25) |
| Industrial policies (O25) | increased productivity in targeted sectors (O49) |
| Industrial policies (O25) | shifted resources in desired direction (F16) |
| Industrial policies (O25) | structural change in economic activity (L16) |
| Industrial policies in East Asia (O25) | economic growth in Japan and South Korea (O53) |
| Effective implementation of industrial policies (L52) | success of industrial policies (L52) |
| Political capture and rent-seeking behaviors (D73) | failure of industrial policies (L52) |