Controversies in Industrial Policy: The Creation of an Explicit U.S. Industrial Policy

As the world continues to globalize, the United States will need to adapt in its industrial policy programs in order to stay competitive. As of today, the United States has no explicit programs to bolster particular industries to increase their performance, but rather does so implicitly through Department of Defense innovations that spill over into the private sector. However, there exist such explicit policies in countries such as South Korea and China. There has been immense growth in the sectors that have been targeted by these programs, and this has raised questions about whether or not the United States should adopt an explicit industrial policy. This thesis uses previous research on clusters, a new classification for Economic Areas, to inform the development of a U.S. tailored industrial policy. This thesis proposes an explicit U.S industrial policy that targets clusters, geographic regions that include multiple related industries, and the results are promising. By using current DOD spending (a measure of U.S. industrial policy expenditure), patent registrations as a measure of innovation, R&D expenditure, and value added, an accurate picture of what such a policy would do can be extrapolated. This thesis lays the groundwork for future research into this proposal, because as more data become available, statistical analyses will become more robust. If the U.S could capitalize on a program such as the one proposed in this thesis, there could be potential gains in employment, industry growth, and innovation. In addition, the U.S. could see decreased income inequality if such a program is employed.