{ "title": "Industrial Policy Is Adapting to Crises, but Remains Hard to Implement Effectively", "publication": "IMF Blog, May 28, 2026", "sourceUrl": "https://www.imf.org/en/blogs/articles/2026/05/28/industrial-policy-is-adapting-to-crises-but-remains-hard-to-implement-effectively", "canonical": "https://www.imf.org/en/blogs/articles/2026/05/28/industrial-policy-is-adapting-to-crises-but-remains-hard-to-implement-effectively", "overlayPath": "/en/blogs/articles/2026/05/28/industrial-policy-is-adapting-to-crises-but-remains-hard-to-implement-effectively/index.md", "summary": "As governments intervene more, evidence shows that the benefits are modest and depend on thoughtful design", "sections": [ { "heading": "Key facts and context", "content": "- Industrial policy has grown more popular in recent years, especially in response to crises.\n- At least 305 industrial policy measures attributed to the war in the Middle East were announced in its first two months; examples include energy and fertilizer export bans, subsidies for green energy products, and support for exporters.\n- The New Industrial Policy Observatory (NIPO) data encompass more than 52,000 interventions across 75 countries since 2009.\n- The total introduced last year was 2.5 times the pre-pandemic average.\n- The recent acceleration in industrial policy began with COVID-19 in 2020; unlike previous crises, many measures remained in place after the emergency passed." }, { "heading": "Priorities shifting", "content": "- Motivations for government intervention have changed:\n - After 2008, dominant justifications were to boost competitiveness and address climate change.\n - Since 2020, rationales increasingly emphasize supply chain resilience, national security, and geopolitical concerns.\n- Governments are moving beyond aims to build stronger, more competitive industries toward reducing dependence on geopolitical rivals and protecting strategic sectors—a qualitatively different kind of industrial policy." }, { "heading": "What’s working? Evidence on outcomes", "content": "- Overall assessment: mixed results; success depends heavily on policy design and instrument choice.\n- Product-level findings:\n - Industrial policy tends to improve competitiveness for targeted sectors, but effects are short-lived.\n - The competitiveness boost is mostly seen in sectors that were already competitive.\n- Firm-level findings:\n - Firm-level subsidies are associated with sustained increases in capital investment, but productivity and output effects fade quickly and can reverse after a few years.\n - Export incentives have little bearing on firm performance, though they can reallocate resources toward more productive firms after a period of adjustment.\n- Bright spots:\n - Targeting sectors with high market distortions (such as generous mark-ups and external financial dependence) can produce effects as much as four times larger.\n - Policies supporting the green transition show stronger and more durable improvements in competitiveness.\n - Interventions that target upstream components for final products appear more effective than those aimed directly at end products." }, { "heading": "Elusive success and comparison with broader reforms", "content": "- The evidence does not support self-reinforcing cycles of success where government support fosters competition; instead, outcomes are mainly modest, temporary gains in already-strong sectors.\n- Broader, economy‑wide reforms often deliver bigger gains:\n - Institutional and regulatory improvements can raise output in inefficient industries by as much as 10 percent in the medium term.\n - This 10 percent medium-term gain is five times as large as the medium-term output boost seen after implementation of industrial policies.\n - Financial reforms especially help credit‑constrained industries.\n- Structural reforms benefit all sectors, avoid the risks of anointing winners, and improve the prospects of industrial policy succeeding if it is used." }, { "heading": "Spillovers and international dynamics", "content": "- Industrial policy typically reallocates resources to targeted entities, which may hurt the overall economy if it comes at the expense of more productive players.\n- When one country subsidizes a strategic sector, others frequently follow (as NIPO data show), risking an expensive, globally inefficient arms race of subsidies that leaves everyone worse off.\n- Industrial policy measures can affect global imbalances when they impact aggregate productivity or are applied economy-wide to force savings and redirect resources toward external surpluses.\n- Managing these spillovers will require more international cooperation at a time when geopolitical tensions make such cooperation increasingly difficult." }, { "heading": "Policy implications and recommendations", "content": "- Success depends on careful policy design, including the choice of instruments and targeting:\n - Prioritize interventions where market distortions are large or where upstream components can be strengthened.\n - Favor policies that support the green transition for more durable competitiveness gains.\n- Strengthen implementing institutions and governance to improve policy effectiveness.\n- Ensure robust macroeconomic policy fundamentals to complement targeted interventions.\n- Consider broader structural reforms (institutional, regulatory, and financial) as often delivering larger and more inclusive gains than targeted industrial policies.\n- Pursue international cooperation to manage cross-border spillovers and reduce the risk of subsidy races and retaliatory measures.\n\nSource: IMF blog article \"Industrial Policy Is Adapting to Crises, but Remains Hard to Implement Effectively\" — May 28, 2026.\n\n---\n\n Content in this bundle\n\n- Chapter 3\n - Chapter 3 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Chapter 3 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- New Industrial Policy Observatory\n- policy design\n- looking at trade patterns\n- firms in targeted sectors respond\n- presence of market failures\n- NIPO data\n- global imbalances\n\nSource: https://www.imf.org/en/blogs/articles/2026/05/28/industrial-policy-is-adapting-to-crises-but-remains-hard-to-implement-effectively" } ], "bullets": [ "[Markdown version](/en/blogs/articles/2026/05/28/industrial-policy-is-adapting-to-crises-but-remains-hard-to-implement-effectively/index.md)", "[Structured JSON version](/en/blogs/articles/2026/05/28/industrial-policy-is-adapting-to-crises-but-remains-hard-to-implement-effectively/index.json)", "[Bundle manifest](/en/blogs/articles/2026/05/28/industrial-policy-is-adapting-to-crises-but-remains-hard-to-implement-effectively/bundle-manifest.json)", "Authors: Adam Jakubik, Florence Jaumotte, Samuel Pienknagura, Michele Ruta", "Published: May 28, 2026", "Industrial policy has grown more popular in recent years, especially in response to crises.", "At least 305 industrial policy measures attributed to the war in the Middle East were announced in its first two months; examples include energy and fertilizer export bans, subsidies for green energy products, and support for exporters.", "The New Industrial Policy Observatory (NIPO) data encompass more than 52,000 interventions across 75 countries since 2009.", "The total introduced last year was 2.5 times the pre-pandemic average.", "The recent acceleration in industrial policy began with COVID-19 in 2020; unlike previous crises, many measures remained in place after the emergency passed.", "Motivations for government intervention have changed:", "Governments are moving beyond aims to build stronger, more competitive industries toward reducing dependence on geopolitical rivals and protecting strategic sectors—a qualitatively different kind of industrial policy.", "Overall assessment: mixed results; success depends heavily on policy design and instrument choice.", "Product-level findings:", "Firm-level findings:", "Bright spots:", "The evidence does not support self-reinforcing cycles of success where government support fosters competition; instead, outcomes are mainly modest, temporary gains in already-strong sectors.", "Broader, economy‑wide reforms often deliver bigger gains:", "Structural reforms benefit all sectors, avoid the risks of anointing winners, and improve the prospects of industrial policy succeeding if it is used.", "Industrial policy typically reallocates resources to targeted entities, which may hurt the overall economy if it comes at the expense of more productive players.", "When one country subsidizes a strategic sector, others frequently follow (as NIPO data show), risking an expensive, globally inefficient arms race of subsidies that leaves everyone worse off.", "Industrial policy measures can affect global imbalances when they impact aggregate productivity or are applied economy-wide to force savings and redirect resources toward external surpluses.", "Managing these spillovers will require more international cooperation at a time when geopolitical tensions make such cooperation increasingly difficult.", "Success depends on careful policy design, including the choice of instruments and targeting:", "Strengthen implementing institutions and governance to improve policy effectiveness.", "Ensure robust macroeconomic policy fundamentals to complement targeted interventions.", "Consider broader structural reforms (institutional, regulatory, and financial) as often delivering larger and more inclusive gains than targeted industrial policies.", "Pursue international cooperation to manage cross-border spillovers and reduce the risk of subsidy races and retaliatory measures.", "**Chapter 3**", "[New Industrial Policy Observatory](https://www.imf.org/en/Publications/WP/Issues/2025/10/31/Industrial-Policy-Since-the-Great-Financial-Crisis-570816)", "[policy design](https://www.imf.org/en/publications/staff-discussion-notes/issues/2025/03/21/industrial-policies-handle-with-care-561795)", "[looking at trade patterns](https://www.imf.org/en/publications/wp/issues/2025/05/23/do-industrial-policies-increase-trade-competitiveness-567184)", "[firms in targeted sectors respond](https://www.imf.org/en/publications/wp/issues/2025/07/18/industrial-policies-and-firm-performance-a-nuanced-relationship-568626)", "[presence of market failures](https://www.imf.org/en/publications/policy-papers/issues/2024/03/11/industrial-policy-coverage-in-imf-surveillance-broad-considerations-546162)", "[NIPO data](https://www.imf.org/en/publications/wp/issues/2023/12/23/the-return-of-industrial-policy-in-data-542828)", "[global imbalances](https://www.imf.org/en/publications/wp/issues/2026/04/04/global-imbalances-industrial-policy-and-tariffs-575229)" ], "related": [ { "title": "Chapter 3", "role": "chapter", "sourceUrl": "https://www.imf.org/-/media/files/publications/weo/2025/october/english/ch3.pdf", "summary": { "path": "/-/media/files/publications/weo/2025/october/english/ch3.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/publications/weo/2025/october/english/ch3.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/blogs/articles/2026/05/28/industrial-policy-is-adapting-to-crises-but-remains-hard-to-implement-effectively/index.md", "json": "/en/blogs/articles/2026/05/28/industrial-policy-is-adapting-to-crises-but-remains-hard-to-implement-effectively/index.json", "bundleManifest": "/en/blogs/articles/2026/05/28/industrial-policy-is-adapting-to-crises-but-remains-hard-to-implement-effectively/bundle-manifest.json" }, "generatedAtUtc": "2026-08-28T18:10:19.435Z" }