in: Development Policy Review, 07 February 2020, 1-22 (online first)
The notion of industrial policy has gained prominence on the policy agenda over the last decade, despite the persistence of an ambiguous and incomplete definition. An inconclusive definition is problematic because it inhibits scholars and policy makers to compare and monitor the impact of industrial policy between developing countries. A deficient definition is also troublesome because it fails to account for issues that are relevant to the impact and usefulness of industrial policy in the process of economic development. We perform a critical literature review of industrial policy and also undertake a policy review, and use insights from 86 structured interviews held with manufacturing businesses and government officials in Ethiopia, to point out how industrial policy could be more effective. The paper finds that there is no clear and exhaustive understanding of what the definition of industrial policy entails. In part this inappropriate definition is also a result of a limited and incoherent use of the notion of structural transformation in the definition and policy formulation of industrial policy. Using a case study on Ethiopia we show how a deficient and incoherent definition and implementation of industrial policy can render limited upgrading, learning and innovation in an underdeveloped economy. For Ethiopia, but also other underdeveloped economies, the findings imply a reconfiguration of industrial policy, not more pervasive industrial policy.