Industrial policy for growth

Kristine Farla


This study investigates the extent to which countries' industrial policy package is successful in stimulating growth. We use perception based data for 59 countries that covers 22 policy aspects and seek to unbundle different dimensions of industrial policy. Using principal component analysis we distinguish between industrial policy that stimulates industry development, 'pro-business' policy, and industrial policy that promotes the development of free markets, 'pro-market' policy. We find that there is a positive relation between these policies which suggests that at the macro level there is no trade-off between the implementation of these two policy types. Furthermore, fixed effect analysis suggests that pro-business policy has a positive effect on growth but not on income. We find no clear relation between pro-market policy and economic development. Finally, we assess the effect of innovation and technology policy on economic performance using a subset of the pro-business type variables. We find that such policy is positively related to both growth and income.

This paper is an update of the original paper published in 2012.

Keywords: Industrial Policy, Growth, Competition, Innovation

JEL Classification: L50, O11, O25, O43

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