Low-Income Countries Outpace Rich Nations in Industrial Policy Use, Tariffs Highest Among Poorest : World Bank

EBR_News Mar 18, 2026

Developing economies now use industrial policy more intensively than advanced economies, with low-income countries imposing average tariffs of 12 percent, more than double the 5 percent rate in high-income nations, according to new World Bank research that upends conventional wisdom about who practices industrial policy.

The report, “Industrial Policy for Development,” draws on unprecedented data collection across 183 countries, including analysis of national development plans, tariff schedules, and business subsidy programs. The findings challenge recent narratives focused on US and European industrial policy announcements.

“A review of the most recent national development plans of 183 countries reveals that all countries target growth of at least one industry,” the authors write. “On average, low-income countries target 13 industries more than twice the number in high-income countries.” Papua New Guinea targets 18 industries, while Czechia, with similar population size but higher income, targets just five.

Upper-middle-income economies those with per capita incomes between $5,000 and $14,000 now allocate total business subsidies averaging 4.2 percent of GDP, the highest level on record. This includes both direct funding and tax expenditures. By contrast, high-income country subsidies have declined from pandemic peaks to 3.1 percent of GDP.

Low-income economies with small domestic markets are the heaviest users of import tariffs, which require large markets to be effective. Upper-middle-income countries go big on business subsidies despite limited evidence they boost productivity. “When all three advantages are large government bandwidth, local market size, and fiscal space countries enjoy the widest range of opportunities to experiment,” the report states. “The situation today represents some inversion of those principles.”

Ethiopia features prominently in the comparative data. The country’s 10.5 percent average tariff and 10.6 percent dispersion rate place it among developing economies using tariffs selectively to tilt economic activity suggesting industrial policy intent rather than pure revenue generation.

The report offers a new “feasibility framework” matching policy tools to country characteristics. For economies like Ethiopia, with moderate market size but constrained fiscal space the recommended first-choice tools are industrial parks, skills development programs, market access assistance, and quality infrastructure. Second-choice tools like tariffs and export subsidies should be used cautiously, given their broader economic costs.

#IndustrialPolicy #GlobalEconomy #WorldBank #Development #Tariffs #EBR_News #EthiopianBuisnessReview #Policy