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As countries strive for a strong recovery and to recoup the losses incurred during the COVID-19 pandemic, they need to map out a new path for development and high and sustained growth. Promoting diversification, developing new industrial capabilities, and designing the policies needed to achieve this goal should be a priority. A successful diversification strategy should tackle both broad policy failures, such as an unfavorable business environment and investment climate and sector-specific market failures. This departmental paper presents a conceptual framework to analyze industrial policy, defined as targeted sectoral interventions. The authors first discuss the key principles that should guide policymakers, that is, a focus on the market failures that could justify targeted sectoral interventions, as well as the potential government failures that can undermine these interventions. The authors then discuss some commonly employed policy tools, their rationale, and the associated pitfalls. Finally, the authors outline a stylized decision-making framework.

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Only a few European economies and Korea and Taiwan Province of China reached high-income status during 1970-2010. Malaysia’s real income per capita increased to 26 percent of the U.S. level in 2010 from 20 percent in 1970. Despite relatively strong growth and a substantial improvement in export sophistication, Malaysia’s total factor productivity lagged behind that of Korea and Taiwan Province of China. We argue that what characterizes their experience in contrast to Malaysia’s is the creation of technologies by domestic firms and a push to leapfrog to the technological frontier at an early stage of development.

Economic development -- Malaysia. --- Economic development. --- Exports -- Malaysia. --- Industrial productivity -- Malaysia. --- Exports and Imports --- Macroeconomics --- Industries: Manufacturing --- Production and Operations Management --- Industrialization --- Manufacturing and Service Industries --- Choice of Technology --- Industrial Policy --- Technological Change: Government Policy --- Economic Growth and Aggregate Productivity: General --- Economywide Country Studies: Asia including Middle East --- Trade: General --- Innovation --- Research and Development --- Technological Change --- Intellectual Property Rights: General --- Macroeconomics: Production --- Aggregate Factor Income Distribution --- Industry Studies: Manufacturing: General --- International economics --- Technology --- general issues --- Manufacturing industries --- Exports --- Productivity --- Income --- Manufacturing --- International trade --- Production --- National accounts --- Economic sectors --- Industrial productivity --- Taiwan Province of China

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A universal testing and isolation policy is the most viable way to vanquish a pandemic. Its implementation requires: (i) an epidemiological rather than clinical approach to testing, sacrificing accuracy for scalability, convenience and speed; and (ii) state intervention to ramp up production, similar to True Industrial Policy (TIP), on a global level to achieve a scale and speed the market alone would fail to provide. We sketch a strategy to tackle market failures and implement smart testing, especially in densely populated areas. The estimated cost of testing is dwarfed by its return, mitigating the economic fallout of the pandemic.

Financial Risk Management --- Macroeconomics --- Public Finance --- Demography --- Diseases: Contagious --- Industrial Policy --- Demographic Economics: General --- Health: General --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- National Government Expenditures and Related Policies: General --- Labor Economics: General --- Health Behavior --- Population & demography --- Health economics --- Economic & financial crises & disasters --- Public finance & taxation --- Labour --- income economics --- Infectious & contagious diseases --- Population and demographics --- Health --- Early warning systems --- Public expenditure review --- Labor --- Financial crises --- Expenditure --- COVID-19 --- Population --- Crisis management --- Expenditures, Public --- Labor economics --- Communicable diseases --- United States

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The Return of the Policy That Shall Not Be Named: Principles of Industrial Policy.

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We study how macroeconomic shocks affect U.S. public debt dynamics using a VAR with debt feedback. Following a fiscal austerity shock, the debt ratio initially declines and then returns to its pre-shock path. Yet, the effect is not statistically significant. In a weak economic environment, the likelihood of a self-defeating austerity shock is much higher than in normal times. An inflation shock only slightly reduces the debt ratio for a few quarters. A positive growth shock unambiguously lowers debt. In our specification, the debt ratio is stationary, whereas a VAR excluding debt may imply an explosive debt path.

Political Science --- Law, Politics & Government --- Public Finance --- Debts, Public. --- Inflation (Finance) --- Debts, Government --- Government debts --- National debts --- Public debt --- Public debts --- Sovereign debt --- Finance --- Natural rate of unemployment --- Debt --- Bonds --- Deficit financing --- Debts, Public --- Fiscal policy --- Econometric models --- E-books --- Tax policy --- Taxation --- Economic policy --- Finance, Public --- Government policy --- Econometrics --- Exports and Imports --- Inflation --- Macroeconomics --- National Budget, Deficit, and Debt: General --- Price Level --- Deflation --- Fiscal Policy --- Time-Series Models --- Dynamic Quantile Regressions --- Dynamic Treatment Effect Models --- Diffusion Processes --- State Space Models --- Debt Management --- Sovereign Debt --- International Lending and Debt Problems --- Public finance & taxation --- International economics --- Econometrics & economic statistics --- Debt sustainability analysis --- Vector autoregression --- Fiscal stance --- Prices --- External debt --- Econometric analysis --- Debts, External --- United States