"Major economies have turned to industrial policy—the range of policy tools governments use to promote strategic business activities. Should developing economies also resort to industrial policy? Under what conditions should they do so—when will it work and when will it fail? What are the best instruments of industrial policy? This report answers these questions, providing a simple framework for countries to choose between more than a dozen industrial policy tools depending on their objectives and the constraints they face.
Though developing countries have the most to gain, they are least able to pursue industrial policy effectively. The report proposes principles drawn from current research to improve policy effectiveness, even when countries are constrained to second-choice policy tools which entail costs to the wider economy. Results are best when governments experiment with promoting a portfolio of new activities, guided by comparative advantage and market potential. The constraints to effectiveness of
