Industrial Policy: Managing Trade-Offs to Promote Growth and Resilience

The Growth Lab's Research Seminar series is a weekly seminar that brings together researchers from across the academic spectrum who share an interest in growth and development.

Whether attending in person or virtually, please register in advance. Room attendance is permitted for the Harvard community. The Zoom session is open to the public.

Abstract

Countries are increasingly using industrial policy to reshape their economies by supporting strategic sectors and firms. Motivations include boosting productivity, reducing reliance on imports—especially in energy—and enhancing resilience. Industrial policies can help jump-start domestic industries, but their efficacy is sensitive to sector-specific characteristics that can be hard to determine in advance. And industrial policies present trade-offs. Onshoring production in a strategic sector might lead to higher consumer prices for a prolonged period. And the fiscal cost of industrial policy can be substantial at a time of elevated debt and constrained public finances. Even when sector-level outcomes are positive, industrial policy can generate negative cross-sector spillovers and reduce overall productivity by drawing resources inefficiently away from sectors that are not targeted. Effective industrial policy requires careful targeting and implementation, strong institutions, complementary structural reforms and sound macroeconomic policy.

Speaker Biography

Sebastian Wende is an economist in the Economic Modelling team of the IMF's Research Department. His work includes both developing and harnessing models, including the IMF’s Global Macroeconomic Model for the Energy Transition (GMMET, featured in the Oct 2025 WEO Chp3) and the Global Dynamic Network Model (used in the Oct 2024 WEO Chp2). He has both extensive public and private sector experience having worked at the Australian Treasury, BHP and the Reserve Bank of Australia. Sebastian is motivated by enhancing welfare through public policy and fascinated by macro dynamics. He has a PHD from the Australian National University in computational macroeconomics, focusing on tax efficiency in when financial frictions, and heterogeneity of households and firms are accounted for.