What helps improve outcomes of industrial policy? Evidence from Russia

Abstract

In the context of most developing countries, the implementation of industrial policy faces significant challenges related to capacity, access to information, and governance limitations. This situation accounts for the absence of widely recognised success stories – instances where government agencies and policy instruments have an established track record of effectively pursuing national objectives within the realm of industrial policy. This highlights a significant gap in our understanding about which industrial policy tools can be effective in countries grappling with broader deficiencies in their national accountability systems. In this article, we delve into the state support programmes initiated by Russia’s Industrial Development Fund (IDF) since 2014. These programmes aim to promote import substitution by providing industrial enterprises with lowinterest rate loans. Notably, the IDF programmes differ significantly from most other industrial policy instruments employed by the Russian government in terms of their design, implementation principles, and outcomes. Between 2014 and 2017, the implementation of the IDF’s programmes produced statistically significant results, fostering the growth of sales for the supported enterprises. Within our article, we shed light on the institutional features that contributed to the effectiveness of the programmes and enabled the IDF to maintain the integrity of their procedures for selecting beneficiaries and supporting them throughout project implementation. Our analysis has identified a set of institutional arrangements that can maximise the positive impacts of state support programmes while minimising the respective risks. Consequently, we believe that the successful Russian experience in administering the programmes for direct state support holds substantial value for a wide range of organisations compelled to implement government support programmes under less-than-ideal institutional conditions. Furthermore, the emergence of more effective industrial policy tools in Russia, such as the IDF, in the mid-2010s, may partially explain the increased resilience of the Russian economy in the face of large-scale international sanctions imposed in 2022 due to its war in Ukraine.