"Modern targeted industrial policy accelerates structural transformation and green industrialization"

"• Technology transfer mechanisms and joint venture agreements • Export promotion • Import substitution • Selective FDI • Skills training Market antenna Help domestic agents identify or anticipate changes in technologies with implications for the dynamics of manufacturing. • Foresight services and market intelligence Actionable variable Information provider and/or awareness raiser Influence consumer knowledge, awareness, readiness and capabilities to consume certain manufacturing products. • Communication, education and awareness-raising campaigns • National brands • Voluntary labelling Regulator Stimulate and regulate consumption of manufacturing products or influence consumer behaviour through changes in relative prices. • Fiscal (taxes, tariffs, quotas, subsidies, tax credits or exemptions); monetary; and exchange rate policies Influence consumption of manufacturing products or guide consumer behaviour through laws, directives and regulations. • Mandatory standards and labels Enabler/co-generator of innovation Promote, enhance or create demand for innovative products by targeting final users. • Grants and subsidies for consumption of innovation Consumer Promote consumption of manufacturing products, guide strategic investments in innovation, address societal needs through provision of manufactured goods and ensure a market for strategic industries or economic activities. • Public procurement Source: UNIDO elaboration based on Santiago Rodríguez and Weiss (2017), Santiago Rodríguez et al. (2017) and Lin and Chang (2009). Table 6.1 Government roles and industrial policy interventions for demand as a framework condition or an actionable variable 138 Demand-driven policies to foster manufacturing indeveloping countries 6 “ Industrial policies built on comparative advantages propose that a key role of government is to facilitate the growth of the private sector help domestic agents benefit from external market dynamics. Policy considerations frequently revolve around traditional supply-driven industrial policies, including trade- or exchange rate-related regimes; interventions condition the ability of domestic firms to tap into foreign demand through, for example, diversification and upgrading (previous Industrial Development Reports have delved extensively into some of these policy issues). The bottom part of the table characterizes cases in which policy-makers have more leeway to steer demand in desired directions. Demand as a framework condition for industrialization The first two roles identified in Table 6.1 reflect opposed stances regarding the extent to which indus- trial policies in developing countries should conform to or defy comparative advantage.2 The third category falls easily into either camp. Industrial policies to respond to demand as a framework condition gener- ally target entrepreneurial behaviour or business and investment environments conditioning the competi- tiveness and profitability of firms. Of importance are exchange rate and monetary policies; investment in general infrastructure (power supplies, roads, ports); and the governance of international trade and invest- ment. Government interventions can target specific market segments or industries considered strategically important for competitiveness and long-term eco- nomic development. Government as a facilitator of the removal of market failures Advocates of industrial policies built on comparative advantages propose that the role of the government is to facilitate the growth of the private sector, the ulti- mate driver of industrialization. Public policies should level the playing field and create conditions to “initi- ate and support long-run sustained improvements in factors and productivity” (Lin and Chang 2009, p.2), helping domestic firms overcome market failures and enhancing their ability to exploit their country’s com- parative advantage. A country’s industrial structure is endogenously determined by its endowment of natural resources, labour and so on, as well as by policies that facilitate mobility"

"can uncover the need for interventions to promote development of manufacturing activities (Shadlen and Massard da Fonseca 2013). Bridges for some gaps in manufacturing capacities are needed to provide goods and services of high societal value. Stiglitz (2017) recommends demand-driven indus- trial policies to enhance diversification and promote economic transformation. Initiatives to improve income distribution, fight poverty and help the mid- dle class thrive should help increase the size of domes- tic markets for manufacturing products. This chapter provides evidence on the ways in which policy-makers have implemented or are implementing demand- driven industrial policies to tackle some challenges stemming from an increasingly complex multiplicity of development goals linked to industrialization. Taxonomy of demand-driven industrial policy interventions This chapter proposes a taxonomy that draws exten- sively from three interconnected strands of literature: demand-driven innovation policies, industrial policy and sustainable consumption policies.1 The structure acknowledges the distinction between demand for manufacturing products as a framework condition and as a variable that can be influenced by policy. It identifies the roles governments 137 Demand-driven policies to foster manufacturing indeveloping countries 6 “ Demand‑driven policies can be mandatory or voluntary, operate at the national and international level and be applied by carrot or stick play through demand-driven industrial policy inter- ventions. It also brings to the fore the mechanisms that influence the formation of consumer preferences or enhance consumers’ capacity to take up a constant flow of innovative goods. Demand-driven policies can be mandatory or vol- untary, they can operate at the national and interna- tional level and they can be applied by carrot or stick. Governments can pursue multiple objectives along- side, or in conjunction with, supply-driven policy tools. By targeting final demand, governments seek to influence consumers’ willingness to purchase a prod- uct that, in the end, is the result of a value system that encompasses all necessary activities required by manu- facturing firms to transform raw materials into prod- ucts for final users (Priem et al. 2012). Table 6.1 summarizes the major roles governments can play through demand-driven industrial policy interventions. The top part of the table indicates where policy-makers may be able to design interventions that Nature of demand/ role of government Description of intervention Examples of interventions Framework condition Facilitator of industrialization and upgrading Remove market failures so that firms can build on comparative advantages to take advantage of external demand conditions or opportunities for industrialization. • Fiscal, monetary, exchange rate and employment policies • Provision of credits or loan guarantees • Incentives for foreign direct investment (FDI) • Export promotion and competition policies Technological capability- building partner Promote adoption, use and (eventually) development of technologies that enhance knowledge bases and presence in domestic and international markets. • Selective industry protection • Creation of public research centres • Promotion of corporate research and development • Technology transfer mechanisms and joint venture agreements • Export promotion • Import substitution • Selective FDI • Skills training Market antenna Help domestic agents identify or anticipate changes in technologies with implications for the dynamics of manufacturing. • Foresight services and market intelligence Actionable variable Information provider and/or awareness raiser Influence consumer knowledge, awareness, readiness and capabilities to consume certain manufacturing products. • Communication, education and awareness-raising campaigns • National brands • Voluntary labelling Regulator Stimulate and regulate consumption of manufacturing products or influence consumer behaviour through changes in relative prices. • Fiscal (taxes, tariffs, quotas"