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increasingly production specific and tends to favour certainindustries more than others. Another broadly definedhorizontal policy – infrastructure development – is in factlocation specific and different types of infrastructure mightbe more or less cost-reducing depending on the products,energy intensity or destination market of the industriesconcerned.Given this, some degree of targeting is inevitable, althoughthere is no consensus on how much targeting isdesirable. 431The question remains what ‘rule of thumb’ countriesshould follow when choosing which industries to target? 432For developing countries, the debate is divided betweenwhether they ought to be pushing the frontier throughdiversification towards more knowledge-intensiveindustries, or if they should rather be changing theproduction structure towards higher productivity in sectorsof comparative advantage. 433UNCTAD suggests a dual strategy: “The first is to exploitmore effectively those sectors, which are in line withcurrent comparative advantage, while progressivelyupgrading technologies in those sectors. The second is toencourage the development of sectors and activities, whichare somewhat ahead of the country’s current comparativeadvantage, while accelerating the evolution of comparativeadvantage towards sectors and activities more conduciveto development.” 434 The latter entails the strategicdevelopment of production, technological andorganizational capabilities. The question remains of what,for a particular country, constitutes a feasible migrationpath towards an economy of increasing complexity andtechnological sophistication 435 .Industrial policies have also been increasingly addressingthe social and environmental sustainability of industry-ledstructural transformation. The need for industrial policy tomeet the social and environmental challenges ofsustainable development and capture the opportunitiesassociated with these challenges is widely recognized.Industrial policy areasGovernments can address the challenges characterizing theindustrial development process by focusing on five mainareas of policy intervention. For each of them it is possibleto think of a plurality of measures and tools, affecting bothsupply side and demand side dynamics. Table 5-2 providesa snapshot of selected commonly adopted policy measures.93Supply side policy areas(a) Production, technological and organizationalcapabilities development and production capacityexpansionTechnology and innovation policies varysignificantly depending on the level ofdevelopment and technological capabilities ofdifferent countries, with more advanced countriesbeing involved in advanced research and newproduct development and less advanced countriesfocusing on generating absorption capacity,product adaptation and process technologies.Government backing includes supporting andfinancing R&D investments, including industrialR&D expenditures, which account for more than70% of total business R&D; tax support fortechnological investments and for businessesdeveloping new products and processes;promoting eco-innovation and so-called “green”technologies; investing in professional andtechnical education in the fields of computerscience and mathematics, engineering, life andphysical sciences, and managerial sciences; labourmarket regulation; intellectual property protection;and promoting technology transfer betweenresearch institutions and businesses and acrosscountries. 436 437 438 Some of these interventions,especially those linked to skills development andlabour market regulation, are key for enhancingthe social sustainability of the industrializationprocess (see Section 5.3).(b) Development finance and access to financialresourcesThe availability of a wide array of financial servicesand of long-term predictable funding forproductive investments is a fundamental catalystfor economic growth and structuraltransformation. Developmental finance focuses onthree areas: supply of long-term funding,intermediation; and credit for SMEs. In terms ofsupply of funding, the main task is to increase theavailability of investment financing throughencouragement of savings as well as through thereduction of costs and risks, and increasing theefficiency of the financial system. This may involveexpanding the role of development and investmentbanks as well as establishing new mechanisms oflong-term finance, including investment funds. Interms of improving intermediation, it is necessaryto enhance transparency and informationefficiency and improve investor protection.