The revival of industrial policy.

 

Traditionally, industrial policies respond to market failures. These failures can arise from multiple factors, for example, information asymmetries, conflicting interests or excessive market power, that lead to an inefficient allocation of resources across the economy and can hinder development. Governments may also decide that certain goods and services can be best delivered by public provision as natural monopolies. The economic rationales typically associated with industrial policies are outlined in box IV.1.

According to data from Global Trade Alert, the number of new policy interventions remained fairly constant between 2010 and 2019, then increased sharply after the pandemic and peaked in 2022 (figure IV.1).1 Around two thirds were from developed countries and only around 1.3 per cent were from LDCs. These interventions influence the treatment of foreign versus domestic commercial interests, affecting trade in goods and services, investment and labour migration. Because they are mostly linked to sectors and products, these interventions provide a proxy for the broad definition of industrial policies used in this report.  New interventions do not necessarily substitute for existing interventions, and the number of policies therefore tends to increase, creating a complex environment in which less advanced countries or The Global Trade Alert data set provides data on actions and acts in the economic playing field of Governments that can induce changes in international commercial flows (goods, services, investment or labour force migration), introducing market distortions or altering the relative treatment of domestic commercial interests.

For a list of the top 10 countries in terms of policy interventions, comparing the periods 2010–2011 and 2022– 2023, see annex IV. In 2010–2011, the United States introduced the highest number of policy interventions, followed closely by Brazil, with China in third place, displaying a lower number of interventions. In 2022–2023, the United States ranked first and China matched the United States in terms of policy number of interventions; Brazil decreased the overall number of policies. small- and medium-enterprises (SMEs) with more limited resources find it more difficult to overcome barriers or identify opportunities. Some countries have greater institutional capacity than others to design and implement industrial policies, an imbalance that could further widen gaps between developed and developing countries.

Over the past decade, there has also been a significant change in the types of interventions (table IV.1). The emphasis has shifted from measures to protect domestic industries, such as import tariffs and quotas and anti-dumping measures, to more direct support for productive sectors through financial grants, State loans and capital injections or production subsidies. Interventions have also become much more diversified.

In 2022–2023, the types of interventions differed by country grouping (see annex IV), as follows: 

• Developed countries – Aimed more at controlling commercial transactions and investment instruments, or at limiting or prohibiting imports. 

• Developing countries – Introduced more targeted financial subsidies for production or consumption, as well as tariff measures. 

• Least developed countries – Offered more support for exports or applied taxes on imports to match local taxes and made much less use of subsidies than developed or other developing countries. 

Policy interventions may target sectors or particular types of firms such as SMEs, or be confined to certain locations (figure IV.2). Over the last decade, interventions have become more targeted. Governments seem to have aimed at picking winners or favoured incumbent firms and established markets rather than targeting failures in emerging ones.