Industrial policy

Industrial policy refers to government strategies aimed at promoting economic growth and development within specific sectors or industries.
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Updated on Jun 19, 2024
Reading time 3 minutes

3 key takeaways

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  • Industrial policy involves government intervention to support and develop particular industries or sectors of the economy.
  • Common tools of industrial policy include subsidies, tax incentives, infrastructure development, and research and development support.
  • The goals of industrial policy often include job creation, technological advancement, and increased global competitiveness.

What is industrial policy

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Industrial policy is a set of strategic initiatives undertaken by governments to encourage the growth and development of specific industries or sectors within the economy. These policies aim to improve the productivity and competitiveness of targeted industries through various means, such as financial support, regulatory changes, and investment in infrastructure and innovation.

Importance of industrial policy

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Understanding the importance of industrial policy helps in recognizing its role in economic development:

  • Economic Growth: Supports the development of key industries, leading to overall economic growth and increased GDP.
  • Job Creation: Promotes employment by supporting industries that have the potential to create numerous jobs.
  • Technological Advancement: Encourages innovation and technological progress through investment in research and development.
  • Global Competitiveness: Enhances the competitiveness of domestic industries in the global market.

How industrial policy works

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Industrial policy operates through various mechanisms aimed at supporting and promoting targeted industries:

  • Subsidies: Financial assistance provided to industries to lower their costs and encourage production and investment.
  • Tax Incentives: Reductions or exemptions in taxes to stimulate investment in certain industries.
  • Infrastructure Development: Investment in physical infrastructure, such as transportation and communication networks, to support industry operations.
  • Research and Development: Funding and support for innovation and technological development to enhance industry capabilities.
  • Regulation and Deregulation: Implementing or relaxing regulations to create a favorable business environment for specific industries.

Examples of industrial policy

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For instance, a government might implement an industrial policy to support the renewable energy sector by offering tax incentives to companies investing in solar and wind energy projects, subsidizing research into new technologies, and investing in infrastructure like smart grids to facilitate energy distribution.

Real world application

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Industrial policy is applied in various ways across different countries and sectors:

  • Automotive Industry: Governments may provide subsidies and tax incentives to car manufacturers to promote the production of electric vehicles, aiming to reduce carbon emissions and foster innovation in clean energy.
  • Technology Sector: Investment in broadband infrastructure and funding for tech startups can help build a robust technology sector, driving innovation and economic growth.
  • Agriculture: Policies that support sustainable farming practices and provide financial assistance to farmers can help improve food security and promote environmental sustainability.

In summary, industrial policy plays a vital role in shaping the economic landscape by promoting the growth and development of strategic industries. Through targeted interventions, governments can stimulate economic growth, create jobs, foster technological advancement, and enhance global competitiveness.


Sources & references

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