The New Economics of Industrial Policy

We discuss the considerable literature that has developed in recent years providing rigorous evidence on how industrial policies work. This literature is a significant improvement over the earlier generation of empirical work, which was largely correlational and marred by interpretational problems. On the whole, the recent crop of papers offers a more positive take on industrial policy. We review the standard rationales and critiques of industrial policy and provide a broad overview of new empirical approaches to measurement. We discuss how the recent literature, paying close attention to measurement, causal inference, and economic structure, is offering a nuanced and contextual understanding of the effects of…