World Bank. Industrial Policy
The chapter Industrial Policies in Europe and Central Asia analyzes the increasing role of industrial policy in the region, particularly after 2020. It defines industrial policy as government interventions aimed at reshaping economic activity by promoting specific sectors or firms. The chapter highlights how these policies have expanded beyond traditional competitiveness goals to include resilience, energy security, and innovation. It also examines whether industrial policy is an effective tool for economic development in the current global context.
What is industrial policy?
Industrial policy is described as a broad set of government actions designed to influence the structure of economic activity. Historically, such policies focused mainly on improving sectoral competitiveness. However, the concept has evolved significantly. It now includes objectives such as supply chain resilience, lower energy intensity, national security, and regional development.
This broader definition reflects a shift in global economic priorities. Industrial policy is no longer limited to supporting industries but also addresses systemic challenges. Nevertheless, for these policies to be effective, they must target specific market failures and operate within a competitive framework. Maintaining a level playing field is essential to avoid inefficiencies and distortions in resource allocation.
Industrial policies in Europe and Central Asia
The use of industrial policy in Europe and Central Asia has increased sharply since 2020. Initially, this rise was driven by the need to respond to the COVID-19 pandemic and related economic disruptions. Over time, the focus shifted toward long-term development goals, including energy efficiency, food security, and supply chain resilience.
As shown in the figures in the report, the number of policy announcements has grown significantly in recent years. These interventions are often motivated by geopolitical concerns and national security considerations.
In addition, industrial policies in the region reflect structural challenges. Productivity growth has slowed, and economic sophistication has stagnated compared to other global economies. These trends have encouraged governments to adopt more active intervention strategies.
The intensity and structure of industrial policy
Industrial policy in the region is characterized by the widespread use of subsidies and non-tariff measures. According to the data presented in the report, most interventions do not target specific firms but rather broader sectors or economic activities.
The sectoral focus of these policies is also notable. A large proportion of interventions target agriculture and food production, while only a small share is directed toward high-technology sectors. This pattern contrasts with high-income countries, where industrial policies tend to support more advanced industries.
Furthermore, tariffs play a relatively limited role in the region. Average tariff levels are low compared to other developing regions, suggesting that industrial policy relies more on indirect instruments than on traditional trade protection.
Industrial policy and competition
The chapter emphasizes the importance of maintaining competition when implementing industrial policy. In the past, such policies were often associated with protectionism and market distortions. However, the current consensus is that industrial policy must support, rather than undermine, competitive markets.
A pro-competitive framework helps ensure that industrial policy contributes to productivity growth and job creation. Without competition, there is a risk of favoring incumbent firms, which can lead to inefficiencies and misallocation of resources. Therefore, industrial policies should be carefully designed to address market failures while preserving market dynamics.
Reference
World Bank. (2026). Industrial Policies in Europe and Central Asia. En Europe & Central Asia Economic Update. World Bank. https://doi.org/10.1596/978-1-4648-2332-9