Industrial policy in a multi-level governance system: design, filtering and territorial capabilities in the European Union

Over the past decade, the European Union has been facing growing geopolitical and economic pressures, including the reshaping of global value chains, rising trade tensions, and the need to strengthen resilience, innovation, and competitiveness. These challenges have driven a shift from market creation, primarily achieved through competition policy and regulatory frameworks, to market direction, through a renewed emphasis on industrial policy. While a growing literature has examined the principles and institutional conditions for an effective industrial policy, the presence of a unitary industrial state is typically assumed in its design. Yet, unlike centralized industrial policymakers such as the US and China, the EU operates through a multi-level governance structure: instruments are designed at supranational level, mediated by Member States, and implemented through territorial ecosystems, producing heterogeneous outcomes across territories. The paper argues that conventional industrial policy concepts, such as developmental states and place-based strategies, do not translate neatly to this multi-level environment and therefore require reframing for an institution like the EU. It then develops an analytical framework to map and understand the functional differentiation of industrial policy tasks across governance levels – supranational design, national filtering, territorial capabilities – and to characterize the institutional configurations that emerge from their interaction. This framework is proposed as a tool to identify where tensions arise in the EU context of uneven capabilities and instruments complexity. Finally, the paper applies this framework to selected EU industrial policy instruments, such as Important Projects of Common European Interest (IPCEIs), state aid rules, and mission-oriented funding programs, examining how design features and institutional assumptions influence their national mediation and territorial absorption.