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Horizontal industrial policy refers to state interventions designed to raise the overall productivity, competitiveness, or innovation capacity of an economy without favoring any particular sector, firm, or technology. It is typically contrasted with vertical (or selective) industrial policy, which targets specific industries — semiconductors, shipbuilding, electric vehicles — through tailored subsidies, tariffs, or state ownership.
Typical horizontal instruments include:
The intellectual appeal of the horizontal approach rests on the idea that governments lack the information to identify winning industries and are prone to capture by incumbents — a critique associated with Anne Krueger's work on rent-seeking and with much of the World Bank's policy advice during the 1980s and 1990s. Horizontal measures are also generally easier to reconcile with WTO rules, particularly the Agreement on Subsidies and Countervailing Measures, because they are less likely to be "specific" subsidies subject to challenge.
The distinction is not always clean in practice. A "horizontal" R&D credit weighted toward manufacturing, or training funds concentrated in green skills, effectively channels support to particular sectors. Recent debates — around the US CHIPS and Science Act, the EU Green Deal Industrial Plan, and reshoring strategies — have revived interest in explicitly vertical tools, leading scholars such as Dani Rodrik and Reka Juhasz to argue that the horizontal/vertical binary is analytically less useful than asking whether industrial policy is well-designed, conditional, and accountable.
Horizontal policy provides economy-wide support such as R&D credits, infrastructure, or training, while vertical policy targets specific sectors or firms with tailored subsidies, tariffs, or protections.
They reduce the risk of government failure, rent-seeking, and regulatory capture, and are typically easier to defend under WTO subsidy rules because they are not deemed 'specific.'
Many economists, including Dani Rodrik, argue the line is blurry in practice and that what matters more is whether policy is conditional on performance, time-limited, and subject to evaluation.