GCRI · Economic Development
Industrial policy and upgrading
Industrial policy is public action that aims to change the structure of an economy: supporting new sectors, building capabilities, attracting investment and moving firms into higher-value activities. It has returned to the centre of policy in many countries, and its record is mixed. This page sets out how industrial policy works and fails, how upgrading is measured, and what evidence serves the ministries and agencies that design it.
Industrial policy and upgrading in seven parts.
- 01The questionIndustrial policy and upgrading: how the risk develops
- 02Across the domainsIndustrial upgrading draws on energy, water and skills
- 03IndicatorsWhat is measured, and how well
- 04SourcesWhere the evidence comes from
- 05DecisionsWho decides, and what the evidence serves
- 06Core questionsWhat experts ask about industrial policy
- 07Mechanisms and driversHow economies upgrade
Industrial policy and upgrading: how the risk develops.
Capabilities, innovation and manufacturing. The dossier below sets out how the risk develops, what is measured, where the data come from, how it is modelled and who decides.
Capabilities build on each other
Countries tend to diversify into products that use capabilities close to those they already have. Jumps far from existing strengths are harder.
Coordination fixes missing pieces
New industries may need infrastructure, skills, suppliers and standards at once. Policy can coordinate these when markets alone do not.
Discipline prevents capture
Support without performance conditions and exit rules can protect inefficient firms. Clear targets, monitoring and sunset clauses keep policy honest.
Global rules and rivals shape room
Trade agreements, subsidy rules and competing subsidies abroad limit and shape what industrial policy can do.
People and hazards in Africa.
Population density, night lights, flood water and true-colour imagery over Africa, from NASA GIBS. Each layer carries its own date.
The interactive map needs JavaScript; the layer list and sources are below.
Layers 4
People and hazards, for this page
Keyboard, with the map focused
Hold Ctrl or ⌘ and scroll to zoom
Latest available
NASA GIBS / EOSDIS · ASTER GDEM (METI, NASA) · Blue Marble (NASA) · © OpenStreetMap contributors (ODbL) · Natural Earth
Loading the latest NASA imagery.
Drag to move. Ctrl or ⌘ and scroll, pinch or the buttons to zoom; hover for the values under the pointer; reset returns to the region.
People and hazards, framed on Africa.Satellite and model products as NASA publishes them, each with its own date. They are indicators, not assessments of any place.
Data: NASA GIBS · ASTER GDEM · Blue Marble · © OpenStreetMap contributors · Natural Earth · NASA EONET · NASA HLS S30Sources and licences
- We acknowledge the use of imagery provided by services from NASA's Global Imagery Browse Services (GIBS), part of NASA's Earth Science Data and Information System (ESDIS). Colours redrawn from the published colour map; values averaged into hexagonal cells where shown (modified). NASA open data
- We acknowledge the use of imagery provided by services from NASA's Global Imagery Browse Services (GIBS), part of NASA's Earth Science Data and Information System (ESDIS). Colours redrawn from the published colour map; values averaged into hexagonal cells where shown (modified). NASA open data
- Center for International Earth Science Information Network (CIESIN), Columbia University. 2018. Gridded Population of the World, Version 4 (GPWv4): Population Density, Revision 11. NASA Socioeconomic Data and Applications Center (SEDAC). Licensed under CC BY 4.0. Colours redrawn from the published colour map; values averaged into hexagonal cells where shown (modified). doi:10.7927/H49C6VHW. CC BY 4.0
- VIIRS Black Marble night-time lights, NASA Goddard Space Flight Center; distributed by the NASA Level-1 and Atmosphere Archive and Distribution System (LAADS DAAC); imagery via NASA GIBS. Colours redrawn from the published colour map; values averaged into hexagonal cells where shown (modified). NASA open data
- VIIRS near-real-time products (flood, land surface temperature, snow cover, corrected reflectance), NASA LANCE; imagery via NASA GIBS. Colours redrawn from the published colour map; values averaged into hexagonal cells where shown (modified). NASA open data
- MODIS land products (vegetation indices, gross primary production, land cover), NASA LP DAAC and LANCE; imagery via NASA GIBS. Colours redrawn from the published colour map; values averaged into hexagonal cells where shown (modified). NASA open data
- ASTER GDEM is a product of METI and NASA (ASTER Global Digital Elevation Model V003, NASA LP DAAC); imagery via NASA GIBS. Colours redrawn from the published colour map; values averaged into hexagonal cells where shown (modified). Cite as: NASA/METI/AIST/Japan Spacesystems and U.S./Japan ASTER Science Team (2019). ASTER Global Digital Elevation Model V003. doi:10.5067/ASTER/ASTGTM.003. NASA open data
- Made with Natural Earth. Free vector and raster map data @ naturalearthdata.com. Public domain
- © OpenStreetMap contributors (ODbL), via NASA GIBS (coastlines, boundaries, roads and place names). Colours redrawn from the published colour map; values averaged into hexagonal cells where shown (modified). ODbL
- Blue Marble, NASA Earth Observatory; imagery via NASA GIBS. Colours redrawn from the published colour map; values averaged into hexagonal cells where shown (modified). NASA open data
- Context on the globe and flat map: coastlines, boundaries, roads and place names from NASA GIBS reference layers (OpenStreetMap data, ODbL, © OpenStreetMap contributors); Blue Marble imagery as an optional base; 3D terrain and the elevation read-out from the ASTER GDEM elevation colour index (5 m to 200 m classes, exaggerated for legibility). Boundaries are drawn as published and imply no position on any territory.
- Live events: NASA Earth Observatory Natural Event Tracker (EONET); events are indicative and keep their original source links.
- Live: NASA EONET Events are indicative, not authority warnings.
- Observed (EO): NASA HLS S30 (contains modified Copernicus Sentinel data 2026). We acknowledge the use of imagery provided by services from NASA's Global Imagery Browse Services (GIBS), part of NASA's Earth Science Data and Information System (ESDIS).
- NASA GIBS: We acknowledge the use of imagery provided by services from NASA's Global Imagery Browse Services (GIBS), part of NASA's Earth Science Data and Information System (ESDIS).
- Optional layers (5 sources in the layer list: live, forecast, observed and context) print their provider credit on the map and here when switched on; forecasts are model output and derived indices are estimates.
Layers and dates
- Population density, 2020: Population: CIESIN, Columbia University, Gridded Population of the World v4.11 (2018), NASA SEDAC, CC BY 4.0 · static
- Night-time lights, daily: VIIRS Black Marble (VNP46A2), NASA LAADS DAAC · 12 Oct 2026
- Flood water, 3-day composite: VIIRS Global Flood Product, NASA LANCE · 14 Oct 2026
- True colour: VIIRS NOAA-20 corrected reflectance, NASA LANCE · 13 Oct 2026
- Land cover type (IGBP), yearly: MODIS Terra and Aqua land cover (MCD12Q1), NASA LP DAAC · 2024
- Enhanced vegetation index, rolling 8 days: MODIS Terra EVI, NASA LANCE · 13 Oct 2026
Industrial upgrading draws on energy, water and skills.
Findings are designed for the Strategic Systems series. The page sets out evidence and trade-offs; ministries decide industrial policy.
- Evaluations of industrial policies.
- Firm capability studies.
Shock propagation model.
The screen a team would use to follow this subject: its measures, states and decisions. Names are examples and values are illustrative.
Shock propagation model
Industrial policy and upgrading · National economy · Scenario: import price shock
Output impact by channel
Most affected sectors
| Food processing | ▼ 3 | 3462 | Backward |
| Transport | ▼ 6 | 1142 | Forward |
| Construction | ▼ 3 | 2255 | Backward |
| Retail | ▼ 3 | 11,770 | Demand |
Fiscal room
local units, billions, illustrative
What is measured, and how well.
Each indicator carries its unit, its cadence, the kind of source behind it and the evidence label a value would carry. No values are shown: a programme supplies them under its own authority.
| Indicator | Unit | Cadence | Source type | Label |
|---|---|---|---|---|
| Manufacturing value added | share of GDP | annual | National accounts | Published statistics |
| Export diversification | number of products exported with comparative advantage | annual | Trade data | ESTIMATED |
| Medium and high-tech share of manufacturing | percent of manufacturing value added | annual | UNIDO statistics | Published statistics |
| Industrial policy interventions | count by instrument | annual | Policy trackers | REPORTED |
| Foreign direct investment inflows by sector | currency units | annual | Balance of payments and investment data | Published statistics |
| Support programmes with evaluations | percent of programmes | per review | Programme records | REPORTED |
Stocks, flows, delays and a tipping threshold.
Two stocks, pressure and adaptive capacity, joined by a reinforcing growth loop, a delayed balancing response and damage when pressure outruns capacity; past the threshold the system can tip. Teaching model with stated illustrative values, not a prediction. The map on this page shows Africa; the model itself is not tied to a place.
Controls
- Growth of pressure
- 6.0% a year
- Efficacy of capacity in reducing pressure
- 4.0% a year
- Investment response to perceived pressure
- 20%
- Perception delay
- 4.0 years
- Tipping threshold of pressure
- 60 index
- Amplification past the threshold
- 2.0 times
- Years simulated
- 50 years
Readouts
- Peak pressure
- 113 index
- Capacity at the end
- 186 index
- Years over the threshold
- 15.8 years
Numbers, methods and sources
| Year | Pressure | Capacity | Perceived |
|---|---|---|---|
| 0 | 20.0 | 50.0 | 20.0 |
| 4 | 23.3 | 44.9 | 21.2 |
| 8 | 27.2 | 42.2 | 24.0 |
| 12 | 31.7 | 42.3 | 27.7 |
| 16 | 36.8 | 45.5 | 32.2 |
| 20 | 42.3 | 51.5 | 37.2 |
| 24 | 47.9 | 60.3 | 42.6 |
| 28 | 53.2 | 71.3 | 48.0 |
| 32 | 57.8 | 84.3 | 53.1 |
| 36 | 66.4 | 98.4 | 58.4 |
| 40 | 82.7 | 115.9 | 69.7 |
| 44 | 97.8 | 139.7 | 83.8 |
| 48 | 109.1 | 169.4 | 97.3 |
Methods
- System dynamics Forrester (1961), Industrial Dynamics, MIT Press; Sterman (2000), Business Dynamics
- Critical transitions and tipping points Scheffer and others (2009), Early-warning signals for critical transitions, Nature 461
- Causal loop diagram Sterman (2000), Business Dynamics, McGraw-Hill
- Uncertainty fan (parameter Monte Carlo) Spiegelhalter, Pearson and Short (2011), Visualising uncertainty about the future, Science 333
- One-at-a-time sensitivity (tornado) Saltelli and others (2008), Global Sensitivity Analysis: The Primer, Wiley
Data
No observed data enters this model: it runs on the teaching values set by the controls, to be replaced with a programme's own evidence.
Across the six pillars, led by Nexus Consortium
- Experiments Labs
- Built in Economic Development in Foundry
- Tested at Economic Development in Universe
- Codified in Finance, Insurance and the Economy in Standards
- Published in Economic Development in Reports
- Taught in Faculty of Finance and Economics in Academy
Where the evidence comes from.
Named public datasets and institutional records, each with its licence class. Sources by agreement are used only under their terms and never republished.
| Source | What it gives | Licence class |
|---|---|---|
| UNIDO industrial statistics and Competitive Industrial Performance data | Manufacturing structure and performance | Public, UNIDO terms |
| Atlas of Economic Complexity (Harvard Growth Lab) | Product space and diversification analysis | Open, licence to check |
| New Industrial Policy Observatory (IMF and partners) | Tracking of industrial policy measures | Public, terms to check |
| UNCTAD World Investment Report | Investment flows and policies | Public, UNCTAD terms |
| OECD industrial policy and subsidies databases | Government support to industry | Public, OECD terms |
Model industrial policy and upgrading as a system. Run the cascade.
Assembled from the Nexus Standards area profile Financial and economic risk standards: the hazards it names, the systems and sectors that carry the loss, the controls that dampen it and the data that observe it. Choose the components, pick an initiating hazard and step through the cascade. The Map view places the run on an example geography with open data. Every coupling weight is a stated assumption you can change. A teaching model, not a forecast, an assessment or a certification. To model a place of your own choosing, open the full System Builder.
Hazards
- Sea-level rise
- Dam failure
- Coastal flood (set off downstream)
- Storm surge (set off downstream)
- High-tide flooding (set off downstream)
- Coastal erosion (set off downstream)
- Saltwater intrusion (set off downstream)
- Estuary flood (set off downstream)
- River flood (set off downstream)
- Flash flood (set off downstream)
- Mass displacement (set off downstream)
- Coastal habitat squeeze (set off downstream)
- Wetland loss (set off downstream)
- Mangrove loss (set off downstream)
- Groundwater flood (set off downstream)
- Widespread power outage (set off downstream)
- Water supply shortfall (set off downstream)
- Climate-driven migration and relocation (set off downstream)
Systems and couplings
Controls
NS-0Constitution and principlesNS-3Risk record UNIs (grammar, legacy crosswalk, allocation authority)NS-9Contextual UNIs (deployments, instances, programme instances)NS-10Policies and clauses (machine-readable obligations: definition, binding, evaluation and enforcement)NS-11Verification and monitoring (evidence, attestations, zero-trust conformance observation)NS-14Conformance and crosswalk to external standardsNRS-H59Hazard family: Economic shocks and governance failure (NHS-1 soc.economic)NRS-H113Hazard family: Financial-system fragility (NHS-1 soc.financial-system)NRS-H118Hazard family: Organised crime and illicit economies (NHS-1 soc.crime)NRS-H114Hazard family: Macroeconomic and fiscal shocks (NHS-1 soc.macro-fiscal)NRS-H61Hazard family: Cascading failure (NHS-1 sys.cascade)NRS-U27Universe platform profile: Sovereign Capital Nexus
Observation
- IMF data services (WEO, IFS, FSI via SDMX) (listed for reference)
- BIS Data Portal (credit, debt service, property prices, banking statistics) (listed for reference)
- World Bank Open Data and World Development Indicators API (listed for reference)
- OECD Data Explorer (SDMX API) (listed for reference)
- Macroeconomic Dashboard
- Debt service as a proportion of exports of goods and services
- Financial Soundness Indicators
Example geography
- Western Europe: 152 hexagonal cells
- Night lights tonight, outages (VIIRS Day/Night Band), NASA GIBS
- Surface water through cloud, 30 m (OPERA DSWx-S1 radar), NASA GIBS
- Rain rate, last half hour (IMERG), NASA GIBS
- Vegetation disturbance alerts, 30 m (OPERA DIST-ALERT), NASA GIBS
Who decides, and what the evidence serves.
Economic Development prepares evidence. The decisions below are taken by the authorities named, under their own rules, and never by the platform.
| Who decides | The question | Evidence this page serves |
|---|---|---|
| Ministries of industry and trade | Which sectors and capabilities to support and with what conditions | Capability maps; instrument reviews |
| Investment promotion agencies | Which investors and sectors to target | Investment and diversification evidence |
| Finance ministries and auditors | Whether support programmes deliver value | Evaluation evidence |
Outputs this topic produces
- Capability and diversification maps
- Evaluation designs for industrial support programmes
- Reviews of policy instruments and conditions
- Evidence notes for industrial strategies
How industrial policy and upgrading is modelled, measured and tested.
The model, its assumptions, its data and its uncertainty, in the form a scientist or engineer would check. Structures follow published methods. The values drawn are illustrative, not findings.
Sensitivity analysis
Which inputs move the result for industrial policy and upgrading most, one at a time across their stated ranges.
What experts ask about industrial policy.
- Under what conditions do public interventions help new industries develop?
- How do firms and countries accumulate the capabilities needed to upgrade?
- What are the risks of capture, waste and protection of unproductive firms?
- How do global value chains create or limit opportunities for upgrading?
- How do climate and technology transitions change the options available?
How economies upgrade.
Economies develop by learning to produce more complex goods and services. This requires capabilities: skills, know-how, supplier networks, infrastructure and institutions. Capabilities accumulate through doing, which creates a coordination problem. Firms may not invest in a new activity if the suppliers, skills and infrastructure do not yet exist, and these will not appear until there is demand.
Industrial policy aims to solve such problems through targeted support, public investment, research and training, and sometimes trade measures. Historical experience includes both successes and costly failures. Evidence suggests that discipline matters: support linked to performance, competition, export orientation and the capacity to withdraw support from failing activities.
Global value chains change the picture. Countries can enter at particular stages without building an entire industry, but may find it hard to move into higher-value stages.
Methods and their limits.
- 01
Economic complexity analysis
Measures of the diversity and sophistication of exports. They describe structure but do not prove causation.
- 02
Input-output and value-chain analysis
Tracing value added across countries and sectors using network methods. Tables are aggregated and published with delay.
- 03
Policy evaluation
Quasi-experimental studies of specific measures using causal inference. Policies rarely have clean comparison groups.
- 04
Historical case studies
Comparative analysis of national experiences. Context limits transferability.
Evidence on industrial policy is contested. Analyses present competing findings and the assumptions behind them.
How it is studied, and what the methods cannot say.
- 01Economics and development economicsGrowth diagnostics · Structural transformation analysis · Distributional incidenceApplied here
- 02Network science and contagionProduct space analysis · Input-output shock propagation · Financial interconnectednessApplied here
- 03Causal inference and impact evaluationRandomised evaluations · Evaluating place-based policies · Regression discontinuityApplied here
- 04EconometricsShock transmission models · Panel analysis across countries · Nowcasting with alternative dataApplied here
Where this page's references lead.
The bodies and documents this page is read against. Status and editions change; each link goes to the issuing body.
Questions and answers.
What is industrial policy?
What is economic complexity?
Does industrial policy work?
Does the platform favour industrial policy?
Is industrial policy only about manufacturing?
How do climate transitions affect it?
What are the main risks of industrial policy?
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