World Bank Group. Industrial Policy in the Digital Age
East Asia’s growth model is under pressure, and the industrial policy digital age Asia challenge is becoming central. The traditional model based on exports and low-cost manufacturing is losing effectiveness. As a result, governments must rethink how industrial policy works in a digital economy shaped by automation, services, and artificial intelligence.
Industrial policy digital age Asia: the model that no longer works
For decades, growth in East Asia relied on manufacturing, trade integration, and labor cost advantages. However, that model is weakening. Rising protectionism, automation, and slower productivity growth are reducing its effectiveness.
This shift defines the core of the industrial policy digital age Asia problem. Growth is no longer driven by industrial expansion alone. Instead, economies must adapt to new technological and structural conditions.
Productivity slowdown and structural gaps
The main issue is not just slower growth, but declining productivity contributions. Firms in the region are falling behind global leaders, especially in digital sectors.
At the same time, the structure of growth is changing. Manufacturing is losing importance, while services—often less productive—are expanding. Consequently, economies are growing in ways that generate less long-term efficiency.
Policy responses: intervene, but differently
Governments are increasingly turning to industrial policy. However, the industrial policy digital age Asia approach requires more precision than in the past. Traditional tools such as subsidies and protection measures often fail when poorly designed.
The report suggests a clear sequence. First, governments must strengthen fundamentals such as infrastructure, skills, and institutions. Next, they should remove barriers in services, trade, and data flows. Only then should targeted interventions be applied.
This layered approach reduces distortions and increases the likelihood of success.
The digital frontier: data, AI, and competitiveness
The new competitive landscape is defined by digital capabilities. Participation in AI value chains requires strong infrastructure, open data systems, and skilled labor. Without these elements, countries risk exclusion from high-value activities.
At the same time, restrictions on digital services and data flows limit growth potential. Therefore, openness and regulatory clarity become key drivers of competitiveness in the digital economy.
For a broader perspective on global structural challenges, see our analysis on global economic outlook 2026.
Reference
World Bank. (2026). Industrial policy in the digital age: East Asia and Pacific economic update (April 2026). World Bank. https://doi.org/10.1596/978-1-4648-2327-5