The New Economics of Industrial Policy
Réka Juhász, Nathan Lane, and Dani Rodrik
We review the recent literature on industrial policy, providing a critical assessment of new theoretical insights and empirical evidence. We argue that new economic research offers a more positive perspective on industrial policy than earlier work, while acknowledging important caveats and limitations.
Abstract
We discuss the considerable literature that has developed in recent years providing rigorous evidence on how industrial policies work. This literature is a significant improvement over the earlier generation of empirical work, which was largely correlational and marred by interpretational problems. On the whole, the recent crop of papers offers a more positive take on industrial policy. We review the standard rationales and critiques of industrial policy and provide a broad overview of new empirical approaches to measurement. We discuss how the recent literature, paying close attention to measurement, causal inference, and economic structure, is offering a nuanced and contextual understanding of the effects of industrial policy. We re-evaluate the East Asian experience with industrial policy in light of recent results. Finally, we conclude by reviewing how industrial policy is being reshaped by a new understanding of governance, a richer set of policy instruments beyond subsidies, and the reality of deindustrialization.