The product space, sustainability, and GVC oriented industrial policies: The case of iron and steel in the SACU

Abstract

This paper develops, and then applies, a holistic framework that supports industrial policy decision-making at the global value chain (GVC) level, with the aim of stimulating sustainable development in developing countries. Notwithstanding the importance of economic growth for development, industrial policy decision-makers are also concerned about social and environmental objectives when setting industrial policies. We develop a framework that allows for a trade-off between economic growth, social objectives, and environmental goals. We do so by building on the established product space literature, and its extensions, and applying it to the value chain level using the input-output product space approach. By including emerging environmental and green metrics, we manage to identify Pareto-optimal industry targets, taking the economic, environmental, and social objectives simultaneously into account. At the same time, expected required government investment is minimized. Finally, we apply our new framework to the specific case of iron and steel in the Southern African Customs Union, and draw lessons for future work from this example.