Navigating industrial policy and global value chains in an era of disruptions

Abstract

In response to recent socio-economic, environmental, and geopolitical disruptions, governments have reoriented industrial policy from a prosperity-driven to a security-driven agenda based on strengthening strategic supply chains. We provide a framework that integrates the industrial policy and global value chain (GVC) literatures, redressing two research gaps: (1) an outdated view of industrial policy based on twentieth century trade patterns; and (2) inadequate appreciation of how twenty-first century GVC dynamics shape new security-driven policies. Four strategic orientations in industrial policy are identified based on two dimensions: level of economic development (advanced versus emerging economies) and geopolitical context (global integration versus geopolitical fragmentation). Under global integration, (1) advanced economies “create winners” through inside-out policies transforming domestic champions into global competitors; and (2) emerging economies “enable latecomer catch-up” via outside-in strategies leveraging foreign investment for technological accumulation. Under geopolitical fragmentation, (3) advanced economies “enhance economic security” through restrictive outside-in policies prioritizing domestic resilience; and (4) emerging economies “strengthen supplier resilience” with hybrid approaches that maintain global connections while reducing strategic vulnerabilities. We apply this framework to articles in this special issue on five cross-cutting themes: disruptions and resilience; GVC configurations; tensions and trade-offs; new drivers of industrial policy; and data and policy insights.