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What is Industrial Policy?
Industrial policy refers to government strategies aimed at supporting, developing, or restructuring specific industries or sectors to achieve broader economic objectives such as growth, employment, innovation, or competitiveness.
Definition
Industrial policy is a set of government interventions designed to influence the structure and performance of industries in pursuit of national economic goals.
Key Takeaways
- Focuses on targeted support for strategic sectors.
- Uses tools such as subsidies, regulation, and public investment.
- Can shape long-term industrial development and competitiveness.
Understanding Industrial Policy
Industrial policy is used by governments to address market failures, promote strategic industries, and accelerate structural transformation. Policies may target manufacturing, technology, energy, agriculture, or emerging sectors critical to national development.
Common instruments include tax incentives, research and development support, trade protection, skills development, and infrastructure investment. While industrial policy can stimulate growth and innovation, poor design or political capture can lead to inefficiency and misallocation of resources.
Successful industrial policy typically combines clear objectives, strong governance, performance monitoring, and alignment with broader economic strategy.
Types or Variations
Horizontal Industrial Policy: Broad measures applied across industries.
Vertical Industrial Policy: Targeted support for specific sectors.
Green Industrial Policy: Focuses on sustainable and low-carbon industries.
Real-World Example
South Korea’s industrial policy supported the development of electronics, automotive, and shipbuilding industries through coordinated investment, export promotion, and skills development.
Importance in Business or Economics
Industrial policy influences investment decisions, sectoral growth, and international competitiveness. For businesses, it can create opportunities through incentives and support, while also shaping regulatory and competitive environments.
Related Terms
- Economic Development
- Trade Policy
- Industrial Strategy
Sources and Further Reading
- Organisation for Economic Co-operation and Development (OECD)
- World Bank
- International Monetary Fund (IMF)
Quick Reference
- Policy Actor: Government.
- Focus: Industry development.
- Risk: Inefficiency if poorly designed.
Frequently Asked Questions (FAQs)
Is industrial policy controversial?
Yes. Critics argue it can distort markets, while supporters see it as essential for development.
Do developed countries use industrial policy?
Yes. Many advanced economies apply industrial policy, especially in technology and green sectors.
How does industrial policy affect competition?
It can enhance or distort competition depending on design and implementation.
