Directing structural change: from tools to policy

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Structural change towards diversification and competitiveness is essential for productive, wealthy, and sustainable economies. In market economies, private entrepreneurs drive this change by challenging incumbents with innovative business ideas and taking risks. While public policy cannot fully predict market outcomes, it plays a crucial role in guiding structural change. This includes facilitating stakeholder processes to address coordination and information failures, making pre-competitive investments in infrastructure and skills, and aligning change with broader societal goals like environmental sustainability and job creation. Policymakers must anticipate future competitive patterns of specialization, balancing evidence-based approaches with market dynamics. Our paper offers three key contributions: (1) We identify five methodologies for anticipating future competitive advantages, assessing their strengths and weaknesses, and propose a synthetic approach that incorporates their best features. (2) We highlight the significance of disruptive changes, particularly from decarbonization and digitalization, which may impact all sectors and diminish the predictive accuracy of past-extrapolating methodologies. (3) We stress the importance of contextualizing analytical tools, warning against their use as rigid blueprints. Effective evidence-based assessments must be integrated into a political economy framework that considers socie