Production Network Features of Industrial Policy

Industrial policy has gained popularity in recent years and across all regions and income levels. Consequently, it is increasingly important to understand how governments choose the sectors they target. This analysis explores the role of domestic production networks in sector targeting, while controlling for other sector and global value chain characteristics. Combining datasets on industrial policy (Global Trade Alert) and input-output linkages (ICIO, OECD) provides novel insight into the network features of industrial policy. In particular, a sector’s ‘centrality’—i.e., its degree of connectedness - within the domestic production network is an important and significant predictor of sector intervention. The results indicate that industrial policy is used differently across regions, income groups, time periods, and types of policy tools. Notably, emerging economies tend to target more central sectors, while advanced economies target less central ones, on average. However, there has been a global shift toward more central sectors over time. Lastly, subsidies are deployed on more central sectors, while tariffs are used on less central ones.