Staff Discussion Notes

Industrial Policies: Handle with Care

By Sandra Baquie, Yueling Huang, Florence Jaumotte, Jaden Kim, Rafael Machado Parente, Samuel Pienknagura

March 21, 2025

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Sandra Baquie, Yueling Huang, Florence Jaumotte, Jaden Kim, Rafael Machado Parente, and Samuel Pienknagura. "Industrial Policies: Handle with Care", Staff Discussion Notes 2025, 002 (2025), accessed March 22, 2025, https://doi.org/10.5089/9798229000642.006

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Disclaimer: This Staff Discussion Note represents the views of the authors and does not necessarily represent IMF views or IMF policy. The views expressed herein should be attributed to the authors and not to the IMF, its Executive Board, or its management. Staff Discussion Notes are published to elicit comments and to further debate.

Summary

Industrial policies (IPs) are increasingly implemented, necessitating a reassessment of their benefits and costs. This study examines their economic and geopolitical drivers and their impact on targeted sectors. While IPs yield moderate and uneven economic gains, they are more effective when addressing highly-distorted upstream sectors with suitable tools. Structural reforms generally offer greater benefits and strengthen the link between IPs and economic performance. However, IPs may lead to significant fiscal costs and unintended spillovers, potentially accelerating economic fragmentation. Therefore, careful management of IPs is crucial.

Subject: Export subsidies, International trade, Macrostructural analysis, Production, Structural policies, Structural reforms, Total factor productivity

Keywords: Correlates of IPs, Drivers of IPs, East Asia, Economic Performance, Export subsidies, Externalities, Global, Industrial Policies, Ips target, Policy consideration, Protectionist IPS, Spillovers, Structural policies, Structural reforms, Total factor productivity, Trading partner, Value chain

Publication Details

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Industrial Policies: Handle with Care - Online Annexes

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