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Similarly, the emerging literature on green FDI finds that attracting international investments in green industries can provide benefits to the domestic economy. Reviewing a number of cross-sectional econometric and case studies, Golub et al. (2011) find that multinationals are on average both more productive and cleaner than domestic firms and have in some cases even been drivers of stricter environmental regulation in host countries. However, it remains true that technology transfer is not an automatic process, as firms have an interest in maintaining a competitive edge wherever they operate. Nevertheless, rather than restricting foreign access, the literature appears to agree on the need for complementary policies to enhance, notably, a country’s absorptive capacity, including (adaptive) R&D support policies, educational policies, technology licensing and strengthening international networks, for example through worker migration (see for example Popp, 2012; UNEP, 2012b).

IISD REPORT JUNE 2013 2013 The International Institute for Sustainable Development © Industrial Policy for a Green Economy

5.0 Conclusion The literature surveyed suggests that industrial policy can be an effective tool for industry promotion, if it is done right.

We have sought to point out a few best practices that policy-makers ought to consider when designing such policies, cautioning that disregard for certain factors may actually have negative results for industry growth. While the same considerations hold true for green industrial policy, it differs from conventional industrial policy in important aspects.

A key challenge lies in the scale of required government intervention. As government support to the sector rises, so does the risk of government failure. Hence, it will be crucial to adequately design, monitor and evaluate policies to ensure that resources are not wasted. At the same time, the immaturity of the sector globally and distortions induced by the lack of international policy coordination make it harder for countries to accurately assess sectoral progress. As industrial policy by definition discriminates against non-targeted sectors of the economy, these complications call for pragmatic ways of assessing policies in terms of trade-offs among various development goals.

IISD REPORT JUNE 2013 2013 The International Institute for Sustainable Development © Industrial Policy for a Green Economy

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