Innovation in specific sectors offers hope of boosting long-term productivity and growth


While resorting to industrial policy may be tempting for some countries, a range of measures that support innovation on a larger scale can help stimulate economic growth, underlines the International Monetary Fund (IMF) in a new analysis.

Against a backdrop of security concerns, many countries are intensifying their industrial policies to promote innovation in specific sectors and in the hope of boosting productivity and long-term growth, notes the IMF, adding that industrial policy, if carried out judiciously, can be favorable to innovation.

“However, it is essential to find the right balance, because the history of strategic errors, high budgetary costs and negative repercussions for other countries is legion,” notes the international financial institution.

“On the other hand, judicious budgetary policies, which encourage innovation and the diffusion of technologies on a larger scale and favor fundamental research, the basis of applied innovation, can promote stronger growth in all countries and accelerate the ecological and digital transition of the economy,” affirms the same source.

Most industrial policies rely heavily on subsidies or tax breaks, expensive measures that can harm productivity and well-being if not well oriented, notes the Bretton Woods institution.

More generally, States adopting an industrial policy must invest in technical capacities, readjust their support according to the evolution of the situation and act while respecting the openness and competitiveness of markets, notes the IMF.

The measures taken must be designed to avoid unnecessary spending and protectionist policies that could further fragment global trade, notes the Washington-based financial institution.

Countries at the forefront of technology would benefit from adopting a set of measures that broadly support innovation, in particular because basic research with a wide range of applications generally suffers from a funding gap, notes the same source.

“Supporting innovation may pay dividends in the long term, but for countries with limited fiscal space, it may make more sense in the short term to re-prioritize spending and raise more revenue ”, according to the IMF, which emphasizes the importance of strengthening international cooperation and intensifying knowledge exchanges in order to accelerate green and digital transformations and achieve a more prosperous future.

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