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

Hideki Nishigaki

Economic Affairs, 2026, vol. 46, issue 2, 190-203

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.

Date: 2026
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