Discussion paper
DP19693 What Makes Industrial Policy Work?
History is full of examples of successful and unsuccessful industrial policies. The critical question is not whether to engage in such policies but how they are designed and implemented. Industrial policy can work, but only with strict adherence to sensible guidelines based on sound economic practice, political economy considerations, and historical context. Reviewing previous research and focusing on evidence drawn from China and India, I argue that any successful industrial policy requires the following: (1) a successful plan to correct a market failure; (2) consultation with the private sector; (3) enhancement of competition; and (4) a sunset clause permitting the policy to conclude.
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