European Industrial Policy : Economic Foundations, Concepts and Consequences

In this paper, we give an overview on industrial policy in the EU, its instruments and its economic justification. Theoretically, scope for a welfare-enhancing industrial policy exists if market failures occur and can be offset by policy interventions. This includes especially externalities, spill-overs and information problems, particularly in regard to market creation and development as well as to R&D markets. After a brief survey on the development of industrial policy in the EU and its manifestation in the different treaties, the main role of European industrial policy, namely the provision of the right framework conditions for innovation and competitiveness, is discussed. Eventually, we analyse the so-called "new approach for industrial policy," launched by the European Commission in October 2005, which aims to improve the framework conditions for manufacturing industries. After giving a review of the most significant initiatives and changes we draw some preliminary conclusions. Altogether, the new approach may be interpreted as a first and important - but not yet sufficient - step towards a more economic-based European industrial policy