The Matrix Approach to Industrial Policy

The objective of this paper is to analyse the development of industrial policy in the European Union. The changing concepts and rationale for industrial policy are reported with reference to the treaties and communications of the European Commission. Industrial policy has followed the course of these changes, although in reality, the practical changes have occurred at a slower and less radical pace than the changes in philosophy. A new paradigm of industrial policy has recently been developed by the European Commission in a document that first calls for measures improving the competitiveness in all sectors in terms of rather broad measures, and subsequently acknowledges sector differences in the impact of these measures, calling for complementary sector-specific measures. We label this new paradigm the 'matrix approach' to industrial policy, because it combines horizontal and vertical measures. On the empirical level, we see a divide between countries practising a future-oriented approach emphasising innovation and knowledge, and countries that take a more defensive stance, with higher subsidies and a greater amount of regulation. The countries pursuing the more future-oriented approach achieve higher shares of technology-driven and skill-intensive industries and excel with respect to the goals of the Lisbon strategy.