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Industrial Policy in High-Income Economies

February 2015
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This paper charts trends in industrial policy in high-income economies in the post-1945 period. Three distinct phases are identified. The first covers the post-war reconstruction period and extends to the end of the 1970s. Here, a number of governments took major initiatives in funding or supporting new or dynamic activities with the aim of catching up with the US in terms of productivity levels or in easing the adjustment of declining sectors. The second is from the start of the 1980s to around the mid-2000s. The more interventionist version of IP was abandoned in favour of policies of privatisation, market liberalisation, and competition. Support for enterprises was largely, but not exclusively, on a horizontal basis, with an emphasis on incentives for research and development, and training, and opening markets to foreign competition. In the last ten years, attitudes have shifted. The current model in high-income economies at or close to the technology frontier is based on the premise that growth must be innovation-driven as this provides the basis for long-term competitiveness. Policy is based on a combination of horizontal measures relating to the business environment, infrastructure provision, support for cluster development, training, and improvements to financial intermediation combined with specific measures to support innovation, including state funding for research and credit for higher-risk innovative investment. In many countries, there are tentative moves to go beyond general horizontal support to highlight priority areas for innovation initiatives.

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