Chapter 13: Addressing the political economy of green industrial policy with economic geography
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This chapter recognises how political-economy debates on green industrial policy are connected to domestic politicians’ and citizens’ expectations of green growth. Trade protectionist measures on ‘green’ technologies are instituted to ensure that any domestic policy used to support the development of green technologies – whether it is for niche policies or more comprehensive industrial policies – are appropriated within the domestic economy. The domestic political economy debate focuses on whether it is worth supporting green innovation and markets if other economies learn to manufacture and export these technologies. The literature on green growth recognises that global competition results in manufacturing shifting to countries where comparative advantage for manufacturing exists. However, these spatial dynamics contradict the domestic political economy expectations of economic spillovers between domestic innovation, manufacturing and markets. This chapter focuses on how this techno-nationalist perspective, and the resulting imposition of trade protectionist measures for domestic manufacturers, is problematic with regard to the objective of green growth and cost-effective decarbonisation efforts. In doing so, it develops a conceptual framework drawn from evolutionary economic geography to understand why manufacturing – but not necessarily innovation – shifts to lower cost economies as these technologies mature from breakthroughs in product and process innovation, to scaling through mass manufacturing that leads to commodity-like price competition. The consequence is changes in value-added to domestic economies from different industrial activities as technologies mature. Through this spatial framework, it demonstrates how different economies are exposed to global competition, and examines how innovation enables economies to become resilient to competition in manufacturing. Lastly this chapter illustrates how supply-side trade protectionism has opportunity costs to restricting the potential size of the domestic market through increasing the costs of green technologies. In doing so, it also has opportunity costs of associated growth, employment opportunities, and costs to decarbonisation through the market deployment of green technologies. Consequently, the chapter seeks to provide a balanced assessment of how domestic economies can achieve green growth from innovation, manufacturing and markets – an aspect that is underappreciated in the international political economy literature on industrial policy and trade disputes over technologies.

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