Industrial policy and strategies

A new paradigm for better industrial policies

Industrial policy has once again become a topic of discussion after being considered a taboo since the 1970s. With the global financial crisis and the ongoing COVID-19 pandemic, governments have outlined industrial strategies to promote growth, productivity, and resilience, and address societal challenges. However, questions remain about the effectiveness of industrial policy, and the lack of agreement on what interventions constitute industrial policy, how much governments are spending on it, and the mixed evidence on its effectiveness can lead to uncertainty.

At the OECD, we aim to provide tools to address these issues and help governments build better industrial strategies. We offer an accessible framework to design industrial strategies, a measure and categorisation of expenditure of industrial policies benchmarked across countries, and a wider evidence base on what works and what does not.

Industrial policy: A conceptual framework

Our conceptual framework for industrial policy uses a broad definition of industrial policy and considers a vast set of policy instruments ranging from intellectual property protection to public support to improve workers' skills. The framework highlights two main dimensions of the formulation of industrial strategies: designing an industrial strategy and selecting policy instruments to execute that strategy.

The taxonomy of policy instruments distinguishes between demand-side instruments and supply-side instruments that primarily improve firm performance or affect industry dynamics. This framework has already been used by the OECD in recent reports on the design of industrial strategies for the green transition as well as the net-zero transition of the Dutch manufacturing sector and the analysis of green hydrogen strategies. The framework has also been employed by the French administration in the development of the new "France 2030" industrial strategy (link in French).

Industrial policy across countries: Measuring and benchmarking

The OECD gathers harmonised data that allows for the benchmarking of industrial strategies across countries in terms of industrial policy expenditures, policy priorities, policy instruments, and recipients through the new “Quantifying Industrial Strategies” (QuIS) project. It measures industrial policy expenditures across nine OECD members, initially for the period 2019-2021.

The first milestone for the project was the development of a new methodology to gather comparable information on expenditures from publicly available information. The second milestone is the release of the first results of this benchmarking exercise (through a cross-country report as well as dedicated country notes) and the underlying data.

Taking stock of existing evidence on industrial policy

Sound policy making requires a clear view on what works and what does not. Leveraging our framework, we provide a synopsis of the available empirical evidence on industrial policy instruments and their complementarities and trade-offs. This review clearly supports the premise that well-designed economic incentives for firms and good framework conditions are effective.

At the same time, there is still limited evidence on the effectiveness of demand-side instruments, the complementarities between policy instruments, and the effects of industrial policy on resilience, inclusiveness, and the environmental and social performance of firms. As a result, governments need to put a strong emphasis on evaluation and the regular re-assessment of industrial policies.

Related links