Analysis reveals industrial policy boosts technological innovation and research in key industries, suggesting strategic design is crucial.
Industrial policy is essential for fostering technological innovation as it provides focused assistance to key industries, encourages research and development (R&D), and tackles market inefficiencies. Historical examples from countries like the United States, Japan, and Germany demonstrate how industrial policy has contributed to the growth of advanced technology sectors such as artificial intelligence, biotechnology, and renewable energy. As Mazzucato (2013) contends in The Entrepreneurial State, proactive government involvement is vital in shaping markets and enabling breakthrough innovations that may be too risky for private firms alone. However, industrial policy is not without challenges; risks such as inefficiency, market distortion, and rent-seeking behavior must be carefully managed. Rodrik (2008) stresses the importance of strategic policy design and institutional strength to ensure adaptability and relevance to evolving technologies. Freeman (1995) also underscores the role of national innovation systems in maintaining long-term technological advancement. This paper explores the theoretical underpinnings, empirical findings, and real-world case studies of industrial policy's influence on innovation, offering insights for crafting effective innovation-led growth strategies.
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Varsha et al. (2025) studied this question.