Effective industrial policy begins with a strategic foundation. Governments need an evidence-based diagnostic of their economy’s strengths, vulnerabilities, and future opportunities before selecting interventions. Successful strategies define measurable objectives, align institutions around shared priorities, and build consensus across government, industry, research institutions and society. A strategic orientation helps avoid fragmented policymaking and ensures resources are focused where they can create the greatest impact. Strengthening a strategy's transparency, accountability, and long-term credibility enhances potential effectiveness.
Industrial policy
Industrial policy – public interventions to improve the performance of the business sector – has returned to the forefront of policymaking across countries. This shift is driven by multiple challenges that market forces cannot deal with on their own: slowing productivity growth, weakening competition, supply chain vulnerabilities, and the need to accelerate and accompany the clean and digital transitions. Yet concerns about rent-seeking, market distortion and the protection of incumbent firms remain valid. The question for governments is not whether to use industrial policy but how to use it well.
Key messages
Industrial policy works best when institutions move in the same direction. Innovation policy, infrastructure investment, skills development, trade, energy, regulation and finance are deeply interconnected, feeding into a broader industrial ecosystem (e.g. semiconductors). Without co-ordination, policies can overlap, conflict or dilute impact. Effective industrial strategies establish clear leadership, co-ordination mechanisms and governance structures across ministries, agencies and levels of government, e.g. connecting national priorities with regional and sectoral initiatives.
The effectiveness of industrial policy is mixed overall, but it tends to yield better results when it directly addresses identified market failures. Governments may intervene when firms underinvest in innovation, face financing constraints, struggle to scale emerging technologies, or lack incentives to coordinate large-scale investments.
These diverse challenges call for equally diverse policy responses, ranging from horizontal measures to more targeted interventions. Governments can draw on a wide toolkit, including grants, tax incentives, loan guarantees, skills programmes, infrastructure investments, public procurement and regulatory frameworks.
International benchmarking plays a key role in strengthening policy design by enabling governments to learn from one another’s experiences. In this context, databases such as Quantifying Industrial Strategies (QuIS) provide valuable insights to support more informed and effective approaches.
Even the strongest industrial strategy can fail without effective implementation. Successful delivery depends on clear institutional ownership, operational capacity, stable funding, and realistic timelines. Governments need capable public institutions that can coordinate across agencies, engage stakeholders, manage programmes efficiently, and adapt to changing conditions. Transparency and accountability are also essential. Clear selection criteria, measurable objectives, and accessible application processes help build trust and improve policy effectiveness. Strong delivery systems ensure industrial policy translates from political ambition into measurable economic outcomes. For examples of OECD assessments examining whether policies are achieving their intended objectives, see the reviews of Canada and Slovenia:
Industrial policies are long lived: half of the instruments existing in 2023 will still be active in 2041, according to the Quantifying Industrial Strategies database (QuIS), which tracks industrial policy expenditure in 20 OECD countries. Continuous evaluation helps governments understand whether interventions are achieving their intended goals or creating unintended distortions. Effective evaluation combines data, stakeholder feedback, and performance monitoring to assess both short-term delivery and long-term impact. Some programmes may need to expand, others may require redesign, and ineffective interventions may need to end altogether.
Context
Taxonomy of policy instruments
This taxonomy identifies the channels through which policy instruments operate and potential complementarities. In addition to keeping with the traditional distinction between horizontal and targeted policies, the taxonomy distinguishes between demand-side instruments and two types of supply-side instruments: those that primarily improve firm performance (such as tax credits, grants, loans or loan guarantees, and public support for training within firms) and those that affect industry dynamics ( “framework” instruments such as the tax system, capital and labor market policies, competition or trade policies).
Industrial policy spending on grants and tax expenditures
Trends in industrial policy support from 2019 to 2023 show that grants and tax expenditures rose by about 16% over the period, from 1.34% to 1.55% of GDP.
Grants drove most of this increase, climbing from 0.58% to 0.74% of GDP. Tax expenditures grew by 7%, rising from 0.76% to 0.81% of GDP. New measures contributed significantly to the expansion (+0.13% of GDP in 2022 and +0.14% of GDP in 2023), while reductions from discontinued measures remained modest at 0.06% of GDP in both 2022 and 2023.
Industrial policy spending on financial instruments
Financing provided through financial instruments (except export finance) – including guarantees, loans, and government venture capital and equity – averaged 0.92% of GDP in 2023, matching its 2019 level.
Latest insights
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Achieving climate neutrality requires one of the biggest technological transformations in history. Green industrial policies are increasingly considered a necessary part of the solution to keeping climate targets within reach, by accelerating the development and deployment of green technologies. The key question for policymakers is how to design them effectively to help accelerate emissions reductions while minimising risks to competitiveness, inclusiveness, and economic efficiency.Learn more
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Quantification is crucial to guide policymaking, contribute to global transparency on government support to businesses, facilitate international co-ordination, and evaluate the effectiveness and efficiency of industrial policies and strategies. In response, OECD gathers publicly available data and measures industrial strategies across OECD countries through harmonised data on industrial policy expenditures, their composition, their mode of delivery, and the characteristics of their beneficiaries.Learn more