Although much of the debate around industrial policy focuses on its effectiveness and its potential distortive effect, and whether governments are spending too much or not enough, new analysis covering 20 countries points to other important questions: is the money going to the right places, and, once it starts, does it ever stop flowing?
Industrial policy spending is growing, but not dramatically
Across 20 countries, total support through grants and tax expenditures rose from 1.34% of GDP in 2019 to 1.55% in 2023, an increase of about 16%. Grants drove most of the growth, with increases going primarily to fixed capital investment, the green transition and lowering energy costs for businesses. While meaningful, it is far from the spending surge that policy debates might suggest. Financial instruments such as loans, guarantees, and government venture capital held broadly stable. But if the pot is not growing dramatically, what matters more is where it is going. And that is where the picture gets more nuanced.
What countries are already doing matters: Industrial policy instruments are persistent
Of the industrial policy instruments in place in 2023, 76% were already there in 2019, excluding COVID-19 measures. In any given year, the probability of an existing instrument being discontinued is less than 4%. At that rate, half of today’s instruments will still be in place 18 years from now. The industrial policies of today are not necessarily new or temporary crisis interventions.
The number of instruments did grow, from around 1 936 in 2019 to 2 255 in 2023. However, this was not driven by old instruments being replaced. In fact, 2023 saw the fewest new measures introduced since 2020.
This matters for the policy debate. Much of the discussion about industrial policy focuses on what governments announce. The data suggest the more important question is what they are already doing, year after year, and whether anyone is checking that it works. If spending is modest and instruments rarely get discontinued, what matters is whether the existing funding is well targeted.
Is government support flowing to sectors losing ground, not gaining it?
When examining which sectors receive targeted grants and tax expenditures, a pattern emerges. Governments are not systematically directing resources toward their most productive, most innovative, or most export-competitive sectors. If anything, the opposite is true.
New OECD analysis finds a negative and statistically significant relationship between sectoral support and revealed comparative advantage. Sectors where a country already has a strong specialisation tend to receive less support, not more. Similarly, sectors that experienced weaker value-added growth in the previous year tend to attract more targeted public spending.
Sectors attracting support tend to have higher employment. A larger workforce correlates with a greater probability of being targeted by industrial policy at all, even if not necessarily with the intensity of support once a sector is chosen. This picture is consistent with what economists sometimes call "defensive" industrial policy: sustaining sectors that are losing ground internationally, declining in output, and employing large numbers of workers; or that governments are supporting those sectors that are not yet competitive, but of strategic importance.
These findings apply to grants and tax expenditures specifically; loans, guarantees, and venture capital may tell a different story, and some governments do take a more forward-looking and targeted approach than others.
The challenge is monitoring and evaluation to see how to best spend
Industrial policy spending is not exploding. But the combination of squeezed budgets, highly persistent instruments and a pattern of support flowing toward potentially declining sectors raises a difficult question: can governments effectively reallocate?
If most instruments survive for decades and new money is scarce, then every cent locked into a sector losing competitiveness is one not available for a sector that might be gaining it. The critical policy challenge is to develop mechanisms for monitoring and evaluation to wind down, reform or reallocate to make the best use of funds.
Better data is the foundation for making informed decisions. The Quantifying Industrial Strategies (QuIS) project makes it possible to see the full landscape of industrial support across countries and over time, giving policymakers the evidence base to align what they fund with what they want to achieve, as well as compare approaches across countries. The OECD will continue to inform industrial policymaking through the continued expansion of QuIS and engagement with Member countries moving forward.
