The New Economics of Industrial Policy

We discuss the considerable literature that has developed in recent yearsproviding rigorous evidence on how industrial policies work. This litera-ture is a significant improvement over the earlier generation of empiricalwork, which was largely correlational and marred by interpretational prob-lems. On the whole, the recent crop of papers offers a more positive takeon industrial policy. We review the standard rationales and critiques of in-dustrial policy and provide a broad overview of new empirical approachesto measurement. We discuss how the recent literature, paying close atten-tion to measurement, causal inference, and economic structure, is offeringa nuanced and contextual understanding of the effects of industrial policy.We re-evaluate the East Asian experience with industrial policy in light ofrecent results. Finally, we conclude by reviewing how industrial policy is be-ing reshaped by a new understanding of governance, a richer set of policyinstruments beyond subsidies, and the reality of deindustrialization.