Curious to dive deeper into the findings? For a comprehensive analysis and detailed insights, read the full research paper.
By Raul Duarte
As economies confront climate change, technological competition, and regional inequality, can smarter industrial policy offer a practical path forward?
The New Economics of Industrial Policy, written by CID Faculty Affiliate Dani Rodrik and co-authors Réka Juhász and Nathan Lane, synthesizes a rapidly expanding body of empirical research on industrial policy, reflecting a shift from theoretical skepticism toward a more pragmatic, evidence-driven perspective. The authors argue that advances in data and analytical tools have moved the debate beyond the question of whether governments should pursue industrial policy to the more practical issue of how they can implement it effectively. Drawing on studies from East Asia, Europe, the United States, and Latin America, the paper shows that carefully designed industrial strategies—particularly those targeting coordination failures, externalities, and tailored public inputs—can successfully restructure economic activity and boost long-term productivity.
Key Findings:
- A more favorable reassessment of industrial policy: Recent empirical studies, in contrast to earlier correlational work, increasingly find that industrial policies—especially in East Asia and wartime U.S.—led to durable industrial upgrading, productivity growth, and structural change.
- Modern industrial strategy extends beyond subsidies: Contemporary approaches are often export-oriented, service-inclusive, and geographically targeted. Governments now emphasize instruments such as public R&D investment, coordinated infrastructure development, and public–private partnerships rather than relying solely on tariffs or generalized subsidies.
- Effective implementation depends on institutional design: The success of industrial policy hinges on iterative and embedded collaboration between public agencies and firms, rather than top-down directives. Initiatives like the U.S. Advanced Research Projects Agency (ARPA) and Peru’s Mesas Ejecutivas exemplify this collaborative governance structure.
- Manufacturing no longer the sole target: As services account for a larger share of employment, future policies must also support areas like healthcare, education, and care work, particularly in the context of creating high-quality jobs.
Impact and Relevance:
This paper represents a reorientation in economic thinking about industrial policy. By synthesizing a growing empirical literature with clearer theoretical foundations, it dismantles the binary framing of “whether” industrial policy works and reorients the debate toward understanding how it works, under what conditions, and with what instruments. The authors demonstrate that industrial policy is not confined to 20th-century protectionism; rather, it is a flexible and evolving policy framework adopted by both advanced and emerging economies to address challenges such as climate change, regional disparities, and global technological competition.
The study is particularly timely as governments across the world revisit industrial strategy amid growing skepticism of laissez-faire globalization. It shows that successful policy interventions typically rely on structured yet adaptive partnerships between the public and private sectors, supported by targeted public investment, outcome-based criteria, and institutional learning. The paper draws on diverse experiences—from wartime innovation to place-based investment programs—to illustrate how responsive and adaptive governance mechanisms contribute to sustained economic performance.
More broadly, the work challenges economists to move beyond critiques of government failure and toward designing institutional frameworks that mitigate risks while enabling productive coordination. It links traditional economic concepts (such as infant industry support and knowledge spillovers) with modern measurement techniques and cross-country variation in outcomes. In an era where industrial policy is being redefined to include services, green innovation, and job quality, this paper provides an agenda for both scholars and practitioners navigating the next wave of economic transformation.
CID Faculty Affiliate Author
CID Faculty Affiliate Author
Dani Rodrik
Dani Rodrik
Dani Rodrik is the Ford Foundation Professor of International Political Economy at Harvard Kennedy School. He has published widely in the areas of economic development, international economics, and political economy. His current research focuses on employment and economic growth, in both developing and advanced economies. He is the recipient of numerous awards, including the inaugural Albert O. Hirschman Prize of the Social Science Research Council and the Princess of Asturias Award for Social Sciences.
Image Credits
Photo by Acton Crawford on Unsplash
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