Industrial Policies: Handle with Care

Staff Discussion Notes, March 21, 2025

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Industrial Policies: Handle with Care

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Bibliographic details

• Authors: Sandra Baquie, Yueling Huang, Florence Jaumotte, Jaden Kim, Rafael Machado Parente, Samuel Pienknagura
• Published: March 21, 2025
• Series: Staff Discussion Notes
• DOI: https://doi.org/10.5089/9798229000642.006

Summary

• Industrial policies (IPs) are increasingly implemented, necessitating a reassessment of their benefits and costs.
• The study examines economic and geopolitical drivers of IPs and their impact on targeted sectors.
• Key overall conclusion: IPs yield moderate and uneven economic gains, are more effective when addressing highly-distorted upstream sectors with suitable tools, and require careful management because they may entail significant fiscal costs and unintended spillovers that could accelerate economic fragmentation.
• Structural reforms generally offer greater benefits and strengthen the link between IPs and economic performance.

Major findings and empirical results

• IPs produce moderate and uneven economic gains.
• IPs are more effective when:
  • Targeting highly-distorted upstream sectors.
  • Paired with suitable policy tools.
• Structural reforms:
  • Generally offer greater benefits than IPs alone.
  • Reinforce the positive effect of IPs on economic performance.
• Risks associated with IPs:
  • Significant fiscal costs.
  • Unintended spillovers to other countries or sectors.
  • Potential to accelerate economic fragmentation.

Drivers and scope

• The study analyzes both economic and geopolitical drivers of IP adoption and design.
• Sectors and policy instruments discussed include upstream sectors, export subsidies, and protectionist IPs (as indicated by subject and keyword list).

Policy considerations and recommendations

• Manage IPs carefully to balance potential gains against fiscal costs and spillovers.
• Prioritize structural reforms to amplify the benefits of IPs and strengthen economic performance links.
• Use targeted IPs where market distortions are largest and apply suitable tools tailored to upstream sector characteristics.
• Be attentive to international spillovers and the risks of accelerating economic fragmentation.

Key publication metadata and identifiers

• Authors: Sandra Baquie, Yueling Huang, Florence Jaumotte, Jaden Kim, Rafael Machado Parente, Samuel Pienknagura
• Date: March 21, 2025
• Publication type: Staff Discussion Notes
• Series: Staff Discussion Notes No. 2025/002
• Issue: 002
• Volume: 2025
• Pages: 31
• DOI: https://doi.org/10.5089/9798229000642.006
• Stock No: SDNEA2025002
• ISBN: 9798229000642
• ISSN: 2617-6750
• Subjects and keywords: Export subsidies, International trade, Macrostructural analysis, Production, Structural policies, Structural reforms, Total factor productivity; correlates of IPs, drivers of IPs, East Asia, Economic Performance, Export subsidies, Externalities, Global, Industrial Policies, ips target, Policy consideration, protectionist IPS, Spillovers, Structural policies, Structural reforms, Total factor productivity, trading partner, value chain

Source: Industrial Policies: Handle with Care (Staff Discussion Notes), March 21, 2025

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