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Industrial policy under supply constraints: Evidence from Japan's strategic investment sectors

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  • Hideki Nishigaki

Abstract

This article examines the macroeconomic effects of industrial policy in Japan. Using a constrained input–output framework, the analysis focuses on four areas: AI infrastructure, AI software and AI operations, shipbuilding, and defence. The results show that identical fiscal interventions generate heterogeneous outcomes across sectors once production structures and supply constraints are considered. A key finding is that AI infrastructure may not generate as large an induced value‐added effect as might be expected, as a result of its reliance on intermediate inputs. By contrast, AI operations exhibit higher value‐added intensity due to their dependence on human capital. Supply constraints are important, with electricity acting as a short‐run constraint and human capital as a medium‐term limitation. This suggests that industrial policy outcomes depend on the interaction between demand expansion and supply constraints.

Suggested Citation

  • Hideki Nishigaki, 2026. "Industrial policy under supply constraints: Evidence from Japan's strategic investment sectors," Economic Affairs, Wiley Blackwell, vol. 46(2), pages 190-203, June.
    • Handle: RePEc:bla:ecaffa:v:46:y:2026:i:2:p:190-203
    DOI: 10.1111/ecaf.70043
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