No country can reduce poverty sustainably without robust economic growth. Unfortunately, experience shows that governments have, at best, a mixed record fostering growth and competitiveness. In large part, this is because government intervention in markets tends to be based on research that seeks to understand competitiveness through an economy-wide lens. And although macroeconomic responses are often appropriate (to persistently high inflation or overvalued exchange rates, for example), what promotes competitiveness differs significantly from sector to sector. However, analyzing every single business sector at any kind of granular level is impractical, however theoretically useful it might be.
This article presents the results of the McKinsey Global Institute’s (MGI’s) research aimed at helping governments simplify policy development. After analyzing more than 20 countries and nearly 30 industry sectors, MGI created a taxonomy of six aggregated business sectors (infrastructure, local services, business services, manufacturing, resource-intensive industries, and R&D-intensive manufacturing) and a grouping of types of policy levers (setting the ground rules, building enablers, tilting the playing field, and playing the role of principal actor). The article then explains how the four groups of policy levers should be applied —in countries in the low-income and early-middle-income phases of their development — to help each of the business sectors.