Industrial Policy Instruments Research Articles

Exchange rate fluctuations and industrial production in Malaysia: evidence from dynamic simulated ARDL analysis

Contemporary literature argues that the exchange rate serves as an important instrument of industrial policy to boost economic growth. However, it is difficult to design effective exchange rate policies owing to the uncertainty shrouding the outcomes of the exchange rate movement for industrial growth. Therefore, this study uses a dynamic simulated autoregressive distributive lags approach to study the impact of positive and negative changes in the real effective exchange rate on industrial production of Malaysia for the period 1970–2022. We employ an extended production function to study this relationship by incorporating capital, labour and globalisation as additional explanatory variables. The findings suggest that positive (negative) changes in real effective exchange rate are followed by positive (negative) changes in economic growth in the long run. Furthermore, positive changes in capital affect economic growth positively and significantly in both the short and long run. Finally, positive (negative) movement in labour and globalization positively (negatively) and significantly affect industrial production in the long run respectively. Policymakers should depreciate currency to expand industrial production in Malaysia. Moreover, to boost industrial production, short-term loans should be introduced for capital accumulation.

What helps improve outcomes of industrial policy in developing countries? Evidence from Russia

ABSTRACT In developing countries, implementing effective industrial policies faces challenges due to capacity and governance constraints, hindering accumulation of recognised success stories. This impedes our understanding of effective industrial policy tools in countries with accountability deficits. This article explores Russia’s Industrial Development Fund (IDF) support programmes, initiated since 2014, aimed at promoting import substitution through low-interest loans to industrial firms. These IDF programmes appeared to be more effective than most of Russia’s other industrial policy instruments. The article shows that they have resulted in statistically significant sales growth for supported businesses. It highlights institutional features contributing to programme effectiveness, ensuring the integrity of beneficiary selection and project support. It offers valuable insights for organisations implementing state support programmes in challenging governance conditions. Additionally, the recent emergence of more effective industrial policy tools like the IDF may partly explain Russia’s increased economic resilience against international sanctions imposed due to the war in Ukraine.

Assessment of the industrial potential of Russia's industrial regions: Economic security

Subject. This article discusses the issues of ensuring economic growth, rational use of production assets and labor resources. Objectives. The article aims to analyze the trends in the implementation of the industrial potential of some regions of Russia for the period 2017–2021. Methods. For the study, we used a statistical analysis. Results. The article breaks down Russian regions by level of industrial potential. Particular attention should be paid to such industrial policy instruments as an active reduction in imports, attracting domestic and foreign investment. Relevance. The results of the study can be used to design a long-term programme for the development of the real sector of the Russian economy.

Industrial policy for a circular industrial transition in Sweden: An exploratory analysis

Currently, both the US and the EU are pursuing industrial policies to support climate mitigation objectives. The climate transition will require increased use of material resources, but the envisioned industrial policies do not sufficiently address resource use, despite the current unsustainable global resource-use trajectory. The lack of industrial policy in this field is therefore relevant and timely to address. This exploratory contribution aims to gain an understanding on how an industrial policy for Circular Economy (CE) transition in Sweden could be designed. The methods employed are literature reviews and interviews with 18 senior experts. The research finds that a Swedish industrial policy focusing on the CE transition is needed, together with larger public investments in CE-related technologies. Few existing policy instruments functioning as industrial policy for CE are identified, but many additional instruments could potentially serve this objective. The interviews provide insights into the specific policy needs, the factors determining policy-design, and the choice of sectors and value chains for policies to target. A relevant policy mix includes policy instruments such as green tax shifting, differentiated Value Added Tax, Circular Public Procurement, funding schemes, but also an improved institutional framework. Policy criteria should be based on environmental impact, but also on potential competitive advantages, and close alignment with European Union policies. The study concludes that a policy mix combining new and expanded industrial policy instruments, focusing on correcting market failures, market creation, and capacity-building, can support a circular industrial transition.

A New Approach for Better Industrial Strategies

Industrial policy is back. After having been considered a taboo since the 1970s, “new industrial policies” are at the core of governments’ strategies to support countries during crises and enable the green and digital transitions. Virtually, every government has used and uses industrial policy, despite continued concerns related to anticompetitive effects, within and across countries, captured by vested interests and the opportunity cost of public funds, which economists have pointed out, based on previous unsuccessful experiences. In this paper, we contribute to the debate on industrial policy by presenting both a sound and simple framework to help design industrial policies and also data that allow the comparison of industrial strategies and their priorities across countries. First, this paper summarises our recent framework for industrial strategies, which is designed to offer practical policy advice and shed light on the complementarities between different policy instruments. Such a framework is particularly useful when designing complex mission-oriented industrial strategies promoting the green transition of the business sector. Second, this paper presents some salient results from the new “Quantifying Industrial Strategies” (QuIS) project, which gathers harmonised data on industrial policy expenditures, policy priorities, and policy instruments, thereby allowing the benchmarking of industrial strategies across countries. Based on the aforementioned conceptual framework, QuIS measures industrial policy expenditures across 9 OECD members, for the period 2019–2021. The data, now publicly available on the OECD website, show the importance of industrial policy expenditures, and the growing role of green industrial policies in countries industrial strategies.

Доказательность в экономической политике на региональном уровне

This article revisits approaches to regional development by exploring both previously proposed and new policy opportunities for regions facing the greatest challenges in adapting to emerging geo-economic conditions. This revision is based on the methodology of comparative analysis of discrete structural (institutional) alternatives – an essential component for ensuring the necessary evidential level in selecting economic policy instruments, complementing other applied research tools. The Kaliningrad region is one of Russia’s most complex due to its geographical isolation and historical background. The most comprehensive and consistent review of development options, or structural alternatives, for this area is found in the works of Gennady Fedorov, a professor at the Immanuel Kant Baltic Federal University. This study elucidates the need to draw on the ideas of regional and spatial economic development of the Kaliningrad region reflected in the works of Prof. Fedorov and his colleagues from 1991 to 2023, when developing scenarios for Russia’s westernmost region. The main advantage of their findings is that they are presented through the lens of interdisciplinary discourse, utilising concepts from new institutional economic theory to provide an economic perspective. This study reveals the fundamental ideas behind the concept of the geo-demographic situation, the so-called ‘Fedorov matrix’ highlighting structural alternatives for the development of the Kaliningrad region and the spatially distributed clusters. The article examines the three main development strategies of the Kaliningrad region, as analysed by Fedorov, to trace the evolution of the region’s economic activity regulation regime. A conclusion is drawn regarding the demand for industrial policy instruments for the development of the region’s economy, while also emphasising their insufficient efficiency in application. The viability of Fedorov’s forecasts, as outlined in his works, is assessed through the example of planning a spatially distributed tourism and recreation cluster.

Practice of antitrust and industrial policy (Proceedings of the round table discussion at the anniversary conference of the Chair of Competition and Industrial Policy of the Faculty of Economics, Lomonosov Moscow State University)

In modern conditions, the issues of choosing a reasonable balance between antitrust and economic regulation, instruments of antimonopoly and industrial policy — vertical and horizontal — have become actualized. This is due to the fact that several factors have intertwined: digitalization that transforms the usual business models and ideas about acceptable conditions for the functioning of markets; the search for solutions to the problems of sustainable development (low-carbon economy); a dramatic change in geopolitical conditions of doing business in Russia. In 2023, the Chair of Competition and Industrial Policy of the Faculty of Economics of Lomonosov Moscow State University turned 10 years old. On June 14, 2023 an anniversary conference was held to discuss a wide range of issues that the school of institutional studies of competition, industrial and competition policy, which has been formed in Russia, touches upon in its research. Within the framework of the conference, a round table was held on applied issues of antimonopoly and industrial policies in new conditions. Researchers, practicing consultants, and business representatives were invited to the discussion.

Sectoral dynamics of industrial policy in a two-sector economy: the case of Korea’s heavy and chemical industry (HCI) promotion (1973–1979)

This study explores the impact of state’s industrial policy on sectoral capacity utilization and growth in total output in the context of the Korea’s Heavy and Chemical Industry (HCI) promotion (1973–1979). Using a Kalecki-Steindl framework within a two-sector open economy, the study first finds that primary industrial policy instruments—preferential interest rates and export promotion regime—have a positive effect on capacity utilization (aggregate demand) and economic growth, but unbalanced sectoral dependence undermines the effect of industrial policy. Second, the increased market power of firms in the targeted sector has a dual impact on the sectoral capacity, depending on the productivity growth characteristics of each sector. Third, the industrial policy regime is highly susceptible to adverse external price shocks. These findings are consistent with the Korean growth experience during the HCI promotion period in which chaebols (big business groups) flourished, and the economy suffered from stagflation and idle capacity in the final stage of HCI promotion.

Studying the effectiveness and efficiency of industrial policy: The electronic industry case

Subject. The article investigates the issues of industrial policy formation and implementation. Objectives. The focus is on the analysis of tools, effectiveness and efficiency of industrial policy, using the electronic industry case. Methods. The methodology rests on general scientific principles and research methods, like abstraction, generalization of approaches of domestic and foreign authors on economic policy and industry analysis. Results. I investigated an algorithm for development and implementation of industrial policy, containing four stages. The algorithm was tested on the data of electronic industry enterprises. The paper analyzed the currently used tools of industrial policy, evaluated their effectiveness and efficiency, according to the data of 967 enterprises of the electronic industry. Conclusions. The calculations performed according to Spark-Interfax data showed certain effectiveness of industrial policy instruments aimed at demand promotion. The study recorded an increase in revenue, labor productivity, and return on capital of industry enterprises. However, the instruments designed to stimulate supply and support innovation and investment have not yet produced the expected results, since the innovation and investment activity of enterprises remains low, there is no additional inflow of external capital into the industry, and enterprises increase the reinvestment of profits to finance production growth.

How Industrial Policy Could Accelerate Innovation In The Life Sciences.

The US is expanding public investment in the technology-based industries, including the life sciences, in a move driven by anger, fear, and hope. Anger at high drug prices is leading to downward pressures and eroding traditional private-sector funding for research and development, fear of China's technological and political ambitions is creating bipartisan support for intervention, and the successful development of COVID-19 vaccines has spurred hope for analogous publicly funded breakthroughs in other therapeutic domains. The instruments of industrial policy used by other nations include grants for scientific research, equity investments in start-ups, tax incentives for corporate research and development, credit guarantees for asset-intensive sectors, governmental procurement, and product pricing. In the face of ever-stronger competition, if the US is to retain its leading position in the life sciences, public policy must consider competition among nations as well as among firms. This article analyzes emerging innovation and industrial policy in the three principal sectors in the life sciences: research universities and laboratories; entrepreneurial startups and "scale-ups," and large pharmaceutical and medical device corporations.

Развитие отечественной промышленной политики: новые условия и факторы

The article examines the current conditions for the formation and implementation of industrial policy in the Russian economy and the experience of European countries in modernizing the goals, as well as the instruments of industrial policy in the context of increasing crisis trends. Attention is focused on changes in specific economic and institutional conditions for the implementation of industrial policy and on the impact of structural, financial, and political shocks on the choice of its goals and priorities at the meso- and macro-levels. There is a great role of variability and inconsistency among factors influencing industrial policy: environmental, energy, infrastructural, and institutional. The experience of foreign countries in the resuscitation of industrial structures is considered. The necessity of choosing the goals and mechanisms of industrial development with maximum reference to internal resources, creating closed value chains, choosing an acceptable balance between infrastructure development and solving the problems of ensuring national economic security, and overcoming the trends of capital leaching from industrial sectors is emphasized. The high importance of the state’s influence on the corporate policy of the largest companies, increasing the role of the state in financing investments, and strengthening the economic sovereignty of the country are pointed out. The importance of applying new mechanisms for adaptation of the domestic industrial complex to new, changing political and economic conditions of development is emphasized.

Industrial policy impact on competitiveness of companies and sustainable development in post-communist Kazakhstan

Industrial policy that can include industrial programs, liberalization of trade, anti-trust policy or price of capital regulation, in the context of post-communist Ka-zakhstan with its historical particularities of institutions has distinctive features. In order to develop different sectors of economy Kazakhstan government imple-mented two sequential industrial programs for 2010-2019 period. It was expected positive effect of the industrial programs and another initiatives of industrial poli-cy on survivorship of companies inside the country. However, concentration rates of companies and retailers within 20 industries that are highly dependent on indus-tries within programs, were increasing during the period of programs realization and liberalization of trade. In order to estimate which of instruments of the indus-trial policy are effective we employ logistic regression model where competitive-ness of companies is dependent on observed factors. The secondary dataset con-sists of 2271 observations at firm level obtained from Euromonitor International and official sources of Kazakhstan government. We find significant impact of Herfindahl-Hirschman index of companies and an interest rate of the National Bank of Kazakhstan on survivorship of firms rather than other instruments of in-dustrial policy in this case. The more attention the government pays to these in-struments the more companies survive.

Strategic directions of Ukrainian engineering post-war recovery

Strategic directions of Ukrainian engineering post-war recovery

Industrial policy matters: the co-evolution of economic structure, trade, and FDI in Brazil and Mexico, 2000–2015

The early work by Kuznets and Chenery originally developed the theme that economic development was not simply a synonym for aggregate GDP growth, but entailed qualitative changes in the structures of production, employment, and consumption. Later work in international business and economics explored the co-evolution between FDI and economic structure. We investigate the co-evolution between FDI, economic structure and export structures in the two largest Latin American economies, Brazil and Mexico, over the period 2000–2015. Both initially followed similar development strategies during the import-substitution era. During the liberalization era they followed somewhat different strategies towards maintaining the competitiveness of domestic actors. In addition to the analysis of key indicators, we discuss the role played by industrial policies—or their absence—within Brazil’s and Mexico’s development strategies. Industrial policy instruments, such as infant industry protection, subsidies, tax and financial incentives, as well as performance requirements may be crucial to shift the economic structure in the direction of the desired industries. Tracing the co-evolution between FDI and economic structures, even in the absence of statistical rigour to support causal claims, provides interesting insights for industrial policy in the twenty-first century.

Illiberal Versus Externally Fomented growth model readjustment: post-GFC state aid in the EU’s semi-periphery

Most foreign capital-led, export-oriented Eastern EU member states and the consumption-driven Southern European countries suffered a heavy blow during the Global Financial Crisis (GFC) in 2008–09. The GFC exposed the vulnerability of these economies to external shocks and raised the need for readjustment of their growth models through state intervention. While the rise of illiberal governments drove readjustment in the East, the main driver was externally fomented in the South. This article focuses on state aid, a particular instrument of industrial policy, which has been a main vehicle for growth model readjustment. We seek to explore whether the provision of state aid in the two European semi-peripheries contributes to long-term post-crisis recovery by promoting competitive investments in two Eastern (Hungary and Poland) and two Southern EU members (Portugal and Spain). Relying on the European Commission’s state aid database, we show that after 2013, in the consumption-driven South, governments aimed to strengthen supply through aid, while in the export-oriented East, they were more concerned about promoting exporting firms. The article thus reveals how state aid may preserve and reinforce existing growth models in the semi-periphery even if strategic aims and rhetoric target readjustment.

СТРАТЕГИЯ НОВОЙ ИНДУСТРИАЛИЗАЦИИ ФАРМАЦЕВТИЧЕСКОЙ ПРОМЫШЛЕННОСТИ: НАЦИОНАЛЬНЫЕ ПРИОРИТЕТЫ И НОВЫЕ ВЫЗОВЫ

The article analyzes the strategic priorities of technological modernization of the pharmaceutical industry in the conditions of external constraints. The study showed that with the increasing sanctions pressure on Russia, it is necessary to revise strategic priorities and industrial policy instruments, including the strategy of new industrialization being implemented. The conclusion is made that, despite the decrease in the level of dependence on imports, the industrial policy on import substitution is characterized by fragmentation and it has a catch-up character.

МОДЕЛИ ИНДУСТРИАЛИЗАЦИИ ПРИ НАКОПИТЕЛЬНОМ ЭФФЕКТЕ ЭКОНОМИЧЕСКОЙ ПОЛИТИКИ, ПРОВОДИМОЙ В РОССИИ

In the pre-sanctions period in the development of the Russian economy, the task of its industrialization caused scientific and political discussions. However, the issue of organizing the growth of a new quality, open economic wars and sanctions only increased its relevance. The purpose of the study is to typify the models of industrialization of the Russian economy that would be consistent with the general task of stimulating economic growth, taking into account the cumulative effect of the ongoing economic policy, which manifests itself not only at the macroeconomic level, but also in the implementation of sectoral government measures. The task was also a theoretical substantiation of the cumulative effect of state policy on development goals. The research methodology is based on the theory of economic growth and economic policy, the author’s theory of economic system restructuring; it involves the use of econometric, taxonomic, comparative empirical analysis. The general result of the study is that, firstly, the introduction of a concept of various options for the cumulative effect and the strength of economic policy instruments; secondly, the confirmation of technological stagnation in the Russian economy, at least in civil industries, what is requiring active industrialization, reduced to technological re-equipment; thirdly, obtaining conditions for assessing the growth of the economy during its industrialization, which is reduced to the growth of the sector of means of production, which creates them for its own functioning and ensuring other types of activity. The model of industrialization as a restructuring is also shown, acceptable deindustrialization and passive industrialization are highlighted depending on the dynamics of the consumer sector. The ambiguity of the choice of the industrialization model at the theoretical level of analysis is confirmed, what provides a difficult choice when developing an appropriate policy, when it is necessary to take into account the cumulative effect. Thus, the perspective of the study is the refinement of specific instruments of industrial policy by industry with the identification of their current and potential force of use, in terms of achieving the goal of industrialization and economic growth.

International Regulation of Industrial Subsidy

ABSTRACT Subsidies are frequently used by states as an instrument of industrial policy for promoting economic growth, and are a major reason for international trade frictions. Existing industrial subsidy rules, especially the Agreement on Subsidies and Countervailing Measures (SCM Agreement), appear insufficient for effective international subsidy regulation. Subsidy rules reform has been initiated in and outside the World Trade Organization (WTO). Though subsidies are not a China-specific issue, China is an implied target and a major stakeholder of the reform, given the profound impact of its state-led economy. The reform faces a difficult situation: states are tempted to use subsidies to meet various challenges, whereas multilateral efforts in the WTO seem unpromising due to the different positions of world leading economies, and plurilateral efforts led by the trilateral group also face an unclear prospect of multilateralization. Improving international subsidy regulation calls for both rule-making efforts and political consensus and international cooperation, especially from world leading economies.

მრეწველობის განვითარების ხელშემწყობი ეკონომიკური პოლიტიკა საქართველოში

In connection with the transition to a market economy, the industrial industry inherited from the Soviet economy was almost completely dismantled. In 1990-1994, compared to the Soviet era, the production of industrial products decreased fivefold and the number of jobs fourfold (National Statistical Service of Georgia, 1995). Industrial products became uncompetitive in both domestic and foreign markets. The production of machines, devices, tools, electric machines, vehicles, products of light and partly food industry was stopped. Accordingly, the level of industrial production fell, the specific share of industry in the total domestic product decreased, and industrial ties were dissolved. All this led to the deindustrialization of the country. In 1999, the Ministry of Industry of Georgia developed: the Industrial Concept of Georgia and “Strategic Programs for the Development of Industrial Enterprises of Georgia in 2000-2005” in order to solve the extremely important tasks facing the industry of Georgia in the period of transition to a market economy and for their further development. However, they did not have a major impact on the revitalization of the industrial sector. In the years 2003-2012, the share of industry in the total domestic product decreased. By 2020, sales of industrial products and production increased significantly, but the pandemic had a serious impact on both indicators. In 2022, compared to 2020, sales decreased by 2.6 times and output by 2.9 times. The number of employees has increased slightly in recent years; there were no major changes during the pandemic. Wages increased 1.9x in 2022 compared to 2014, with a slight increase in the post-pandemic era. The largest sub-sector of the industry is manufacturing, the share of which has increased compared to previous years (2018 - 18.4%, 2019 - 18.4%, 2020 - 20%). The share of the mining industry has also increased slightly (2018 - 1.2%, 2019 - 1.4%, 2020 - 1.9%). This is followed by the supply of electricity, gas, steam and air conditioning, the share of which is characterized by a downward trend (2018 - 2.3%, 2019 - 2.1%, 2020 - 2.1%). The water supply is also characterized by a decreasing trend; Sewage, waste management and decontamination works (2018 - 0.7%, 2019 - 0.7%, 2020 - 0.6%) (Georgian National Statistics Service, 2021). The economic policy of the state plays an essential role in the development of industry. Institutes have been established in Georgia since 2012, the aim of which was, among other things, to promote the development of various branches of industry. To date, the Government of Georgia has implemented a number of programs in this direction. Specifically, Produce in Georgia, Partnership Fund, Industrial Development Group, Innovation and Technology Development Agency of Georgia, Startup Georgia. After the implementation of programs to support the industrial sector, there are some positive results both in terms of employment and business development. At the current stage of industrial development, the country should choose a model aimed at technological development and maximum growth of export potential. An industrial policy should be developed in the country, which will allow us to apply innovative approaches in the priority branches of industry. It is necessary to use such instruments of industrial policy as: innovations and technologies, education and skills, orientation to foreign trade, development of a mechanism to support priority industries, competitiveness and protection of competition. Based on the identified challenges in the area of ​​industry, recommendations for the implementation of an active industrial policy in short and long term periods were developed. Namely: the government's priority orientation of industrial development; paying special attention to the processing industry sectors that Georgia has the potential to produce; supporting the development of scientific fields; Determination of certain benefits for those investors who invest money in industrial production; State partnership with the private sector, manifested in the fight against bureaucracy, corruption and crime, creating favorable business conditions for entrepreneurs; Coordination between education - science - production should be implemented in the country. Much attention should be paid to basic scientific research, which does not require purely commercial returns in the short term, science should become a real productive force; Particular importance should be attached to the formation of such an entrepreneurial ecosystem that will contribute to the expansion of export-oriented production; Overcoming entry barriers in export markets. Keywords: Industry, sectoral structure of industry, export-import of industrial products, institutions implementing industrial policy. JEL Codes: L16, L52, L53, O25

The heterogeneous effects of industrial policy on technological innovation: Evidence from China's new metal material industry and micro-data

This paper aims to explore the heterogeneous effects of industrial policy on the technological innovation of enterprises in China's new metal material industry (CNMMI) based on a system Generalized Method of Moment (GMM) model. This study analyzes the effects of single-policy instruments, specifically government subsidy, tax credit, and loan support, and further closely examine the combination effects of them. We consider a panel data set that includes 93 listed enterprises from 2008 to 2018 in CNMMI. The findings indicate strong evidence that both fiscal and monetary policy instruments promote technological innovation in CNMMI, especially tax credit. All three industrial policy instruments display an inverted U-shaped relationship with technological innovation, indicating that excessive policy support will inhibit technological innovation. Additionally, the combination of two or three different policy instruments has positive synergistic effects on technological innovation in CNMMI. Based on these conclusions, relevant preferential industrial policies should be introduced and implemented in moderation level, and tax credit should be given top priority. Besides, the government should also further implement an in-depth combination of industrial policy instruments to improve resource integration level and enhance the incentive of technological innovation in CNMMI.