Governments may know they want more semiconductors, clean technologies or advanced manufacturing. The harder question comes next – where should those industries grow?
Strategic industries thrive in places where the right firms, workers, research centres, infrastructure and networks come together. Some of those places already have the capabilities to scale. Others may have assets that can be adapted. And some may need years of investment before they can credibly host a strategic industry.
That makes geography a core industrial-policy choice, not an implementation detail.
This is not a new problem. Earlier waves of industrial policy often concentrated strategic investments in places with suitable industrial legacies, resources or skills – think of US space-race investments in the 1960s, which helped develop major aerospace centres around places such as Huntsville and Cape Canaveral.
But, as our new OECD paper shows, governments now have better tools and data to decide not only where to invest, but also what different places need to contribute.
Where can investment actually land?
When speed is of the essence, the first question is practical: which places are ready for investment now?
Concentrating support where capabilities already exist can accelerate national goals. Korea has linked national industrial priorities to particular regions, both leveraging existing strengths and building new capabilities, from semiconductors around Gyeonggi to textiles in Daegu. But favouring established clusters can reinforce existing regional disparities.
Spreading industrial growth more widely was therefore an important consideration in programmes such as Japan’s Technopolis initiative in the 1980s. And “strongest today” should not automatically mean “best place for every future investment.”
Strategic sectors seldom have a single – or a simple – geography. Capabilities may be spread across regions, including in specialised SMEs and suppliers rather than only large anchor firms. The US Tech Hubs programme, for example, sets national technology priorities while supporting multiple regional coalitions to build on their respective strengths.
Different places can play complementary roles within a strategic industry – from R&D and specialised suppliers to processing and assembly.
Connecting these capabilities across regions can address production bottlenecks and strengthen industrial ecosystems. But this does not mean that all stages of production should be located domestically: international supply chains can improve competitiveness through access to specialised inputs, efficient suppliers and new technologies, while supplier diversification can also strengthen resilience.
Place-based policies can also strengthen strategic sectors while creating opportunities in places facing industrial transition or weaker growth. France’s Territoires d’industrie takes a more locally driven approach, with national and local partners coming together to help regions in industrial transition to develop new opportunities while contributing to national priorities.
Asking a different question
The question becomes not only “where is the sector strongest?” but “what role can different places credibly play, and what additional investment would enable them to do so?”
Canada’s Regional Energy and Resource Tables bring together federal, provincial and territorial governments to identify priorities – from critical minerals and hydrogen to forestry and electrification – based on regional resources, industrial capabilities and energy systems, and to align investment, infrastructure and regulation.
Sweden’s strategy for industrial transformation in Norrbotten and Västerbotten similarly recognises that investment in fossil-free steel, batteries and critical materials requires more than firm subsidies: new investments in energy, transport, housing, skills, permitting and municipal capacity are also part of the plan to the expansion of these industries.
From place diagnostics to policy choices
Systematic place diagnostics can help. They can assess regional capabilities – including those of local SMEs and specialised suppliers that may be less visible in conventional assessments – and how these align with national strategic priorities. They can also help identify constraints to investment and assess potential spillovers.
A practical sequence is to map local capabilities, test them against national priorities, assess delivery capacity, and then choose the appropriate policy route.
Where only a few locations combine strong sector capabilities with the necessary infrastructure and delivery capacity, direct targeting may make sense. Where several places have credible capabilities, competitive programmes with transparent criteria may be preferable.
Beyond immediate investment decisions, diagnostics can also identify longer-term opportunities in places with adjacent capabilities, where removing specific bottlenecks could open up new possibilities. Developing these capabilities may require sustained investment in skills, infrastructure or institutions.
Governments are increasingly using sector-place assessments to connect national and territorial strategies. Japan’s 2026 Regional Future Strategy links national strategic sectors with prefecture-led plans assessing regional strengths, anchor firms, investment needs, supply-chain gaps and expected spillovers before tailoring support.
Costa Rica’s Territorial Economic Strategy combines georeferenced data with economic-complexity and spatial analysis to identify local productive potential, enabling conditions and diversification opportunities
Better evidence, not automatic answers
Yet identifying a promising sector-place opportunity does not, by itself, justify public intervention. Governments must weigh the expected benefits against the costs, assess economic viability and consider whether public support is likely to generate additional economic activity rather than simply shifting it from elsewhere.
Diagnostics can inform these judgements but cannot guarantee spillovers or determine which interventions will succeed.
For this reason and others, place diagnostics cannot remove political judgment and choices from industrial strategy – nor should they. But diagnostics can help structure those choices by anchoring decisions in more transparent criteria, complementing political judgement and negotiation. They can clarify why a place is being targeted, which constraints matter, how investment connects to the wider economy and what trade-offs policymakers need to consider.
National industrial strategies need a map. Governments now have better tools to draw one.
Eduardo Rodriguez Montemayor is an Economic Adviser in the Regional Development and Multi-level Governance Division of the OECD Centre for Entrepreneurship, SMEs, Regions and Cities. He specialises in regional innovation, place-based industrial policy and industrial strategies for territorial economic transformation, including in strategic areas such as the bioeconomy. His work focuses on how places can strengthen productive capabilities, adapt to structural change and contribute to wider competitiveness, resilience and inclusive growth. He advises national and subnational governments on local development strategies, productive transformation investments, innovation enablers and skills policy, combining economic analysis with comparative policy assessment and close engagement with policymakers and stakeholders. His broader career spans strategy consulting, international development and academia, giving him experience at the intersection of analytical research, policy design and implementation. He has worked across a wide range of countries and authored publications on regional and rural innovation, industrial policy, skills and labour markets.