A new report from the World Bank is cautioning that while many developing countries are ramping up industrial policies to accelerate growth, the tools they rely on may not be the most effective for long-term economic transformation.
The report observes that governments across developing economies are now pursuing industrial policy more aggressively than several advanced nations, as they aim to boost industrialisation, generate employment and strengthen local industries. However, the Bank warns that many of these strategies depend heavily on tariffs, subsidies and trade protection, which may not always produce the desired outcomes.
While such measures can offer short-term relief to domestic industries, the report notes that limited state capacity and weak institutional systems in many developing countries often undermine their effectiveness. Without strong oversight, monitoring and proper policy design, these approaches can create inefficiencies, distort markets and ultimately increase costs for consumers.
Rather than relying broadly on protectionist measures, the World Bank recommends more targeted and forward-looking strategies. These include investing in skills development, expanding workforce training, strengthening innovation systems and improving productivity — steps that can help domestic industries compete more effectively on the global stage.
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The report also underscores the need for stronger regulatory frameworks, better institutions and greater support for technology adoption within local industries. By focusing on these structural improvements, developing economies can build resilient industrial sectors capable of sustaining long-term growth without excessive reliance on trade barriers.
In addition, the Bank stresses that industrial policies must be carefully crafted, transparent and grounded in evidence. Clear objectives, strong implementation structures and regular evaluation are essential to ensure policies deliver real economic benefits.
Ultimately, the report concludes that while industrial policy can be a powerful tool for economic transformation, its success will depend on strategic targeting, institutional strength and sustained investment in human capital — rather than an overreliance on subsidies and protectionist trade policies.