A Space Industrial Policy—An Economic View of a New Space Policy

INTRODUCTION

In recent years, much has been said about the New Space ecosystem in the space sector. ¹ The exciting launches and announcements of companies such as SpaceX, Rocket Labs, and Blue Origin, among others have led some to consider that the old days in which space activities were mainly defined by the State are over. Gone are the days in which the space sector was the monopoly of (a few) national states, as now any start-up with a small satellite can conquer the stars.

As inspiring as this picture may seem, the role of the state in the space sector is alive and strong, albeit transformed. Although private entry allows competition to take place and markets to flourish where they were nonexistent, there are still flaws that only a well-executed policy can deal with.

We shall argue that the New Space ecosystem calls for a new type of space policy, one that prioritizes commercial interests and economic development. A specific and targeted industrial policy (IP) for the space sector is strategic for stimulating economic development and promoting a country’s technological innovation. Due to the high investments required and significant risks involved, government actions are necessary to enhance the competitiveness of national companies.

That is, for countries to be successful in the New Space era, their space policy will have to be a space industrial policy (SIP). Our goal is to define what SIP is and show how it differs from a regular space policy.

The article has three sections apart from this brief introduction. The “An Economic Approach to IP” section discusses IPs in general, while the “What Would an SIP Look Like and How Does an SIP Differ From a Regular Space Policy?” section defines an SIP and compares it with a regular space policy. The “The New Brazil Industry Plan and the Space Sector” section applies our thinking to Brazilian IP and the space sector, while “Final Comments” section brings our final comments.

AN ECONOMIC APPROACH TO IP

Because of the complexity of the topic, there are various discussions among economists regarding the concept of IP, with no consensus among them, particularly concerning the extent of state intervention in economic development. ² Some defend a more direct government participation, especially in situations where the market lacks interest in investing due to high levels of uncertainty, while others believe that state intervention would interfere with market performance.

Juhász, Lane, and Rodrik ³ define IP “as those government policies that explicitly target the transformation of the structure of economic activity in pursuit of some public goal.” IP may focus in a particular sector, so reducing “reliance on government funding while growing a commercially viable and sustainable space economy” can be considered an IP goal.

The same authors justify IP in terms of externalities, coordination failures, and public input provision. In the first case, IP permits capturing social benefits that would not be fully captured if individual firms or agents were to take decisions on their own; in the second case, market failure may come up, for example, when goods are complements for upstream or downstream activities, so IP may play a role; last, in the third case, private goods production depends on public goods provision, such as regulations, infrastructure, and education. That is, to launch a satellite (private), I need spaceport infrastructure (possibly public), and therefore, IP may provide me with this infrastructure as well. The space sector fulfills all these three reasons for an IP.

Chang and Amsdem ⁴ defend that IP should be selective, specific to a particular sector in order to ensure efficient outcomes for the economy as a whole. IP would be an instrument of state-coordinated actions, defining investments for those sectors considered fundamental, thereby ensuring greater productive efficiency. ²

Mazzucato ⁵ argues that the government should “pick winners” to stimulate and develop economic activity by selecting companies or supporting strategic sectors, whose outcomes would include technological advancements, knowledge diffusion, job creation, increased income, and higher productivity. In this sense, IP “can be seen as large-scale winner-picking.” However, this selection depends on strategies in which government actions are directed toward a specific goal. As an example, she cites the initiative adopted by the South Korean government when it recognized the promising potential of the high-definition technology market. The government created a committee (“research consortium”) composed of public actors (ministries and research institutes), private companies, and universities with the objective of developing this technology through both public and private investments, and achieved significant results.

Space policy rarely considers IP goals and strategies, especially in less developed countries. It is usually defense focused and politically oriented. However, recent developments in the space sector call for a broader view of this policy. The term “New Space” has been used extensively but has had little actual impact outside a few major countries with robust private markets. It attracts many countries and companies with its potential but turning that potential into reality is a challenge for most. Usually, the challenge has to do with how to create a vigorous environment for local firms to prosper.^6,7 So, it may be the time to speak of an SIP. Indeed, an IP aimed at boosting the space sector is essential when it comes to technological innovation, promoting development, and economic competitiveness, as well as ensuring national sovereignty in a sector widely recognized as strategic.

Alongside IP, economists often speak of comparative advantages, proposed by David Ricardo in the early 19th century. ⁸ This concept is based on the idea of an international division of labor and that countries should specialize in those goods and services that they produce better. For example, a country with rich natural resources and thriving agriculture, oil and mining sectors probably has a comparative advantage in primary goods, or those raw materials found in nature. Many countries with that profile underwent an import substitution process in the 20th century. Some of them, however, failed to complete the cycle of internalizing the production of more sophisticated, technology-intensive goods^9–11 and were caught in an income trap. ¹² Although they tried to industrialize, they are still very dependent on the agriculture sector. This is to say that comparative advantages, resources, and capabilities are not something to be ignored, so a solution for such countries has to consider their factor and resource availability.

More recent economic theoretical developments propose the complexity concept, which brings together the comparative advantages and IP approaches. The work of Hausman et al. ¹³ considers that countries grow by diversifying their production structure, that is, by producing new, more complex goods that require more knowledge to make. However, there are different strategies for a country to choose a new good to add to its production structure:

It can choose a good that is close to its production structure and that uses most of its existing capabilities.

The first strategy is usually easier and faster to implement. Its probability of success tends to be higher, however, and its potential gain tends to be lower. The second strategy is usually harder and more time-consuming to implement as it requires more investments (for a country to learn new capabilities, it needs to transfer technology, allocate/import capital, invest in infrastructure and human capital, and so on) and its probability for success tends to be lower due to its difficulty and more long-term nature. However, its potential gains tend to be much greater. So, it is a gamble between a small, almost sure, short-term investment and a bigger, uncertain long-term investment.

Mazzucato ¹⁴ argues that innovation always falls in the last category and that is why the state has a strong role in some sectors. However, she calls for a symbiotic relationship between the state and the private sector, where the state must dissipate risk in those sectors where technology uncertainty prevails, and investments are large and occur over long-term horizons. In this way, the government’s main role would be to motivate society to invest in ventures with high risks, acting as an “active investor promoting public support to share rewards.” ⁵ That is the case, again, of the space sector, which is one of her most frequently used examples. Following this line, Mercure et al. ¹⁵ reinforce the view that the future is uncertain and posit risk diversification policies for technology choice.

Applying this to our proposal for an SIP, we can say that neither a strictly “close to its production structure that uses most of its existing capabilities” nor a “bit further away from its production structure that requires learning new capabilities” approach is the best call. Diversification seems to be the answer. The approach that considers existing capabilities could be suitable in the short term; however, to innovate and to be more competitive, new capabilities are important to develop, and the results will be observed in the long term. The challenges are how to transform this into an operational policy.

WHAT WOULD AN SIP LOOK LIKE AND HOW DOES AN SIP DIFFER FROM A REGULAR SPACE POLICY?

To sum up our theoretical base for an SIP, we aim for a risk diversification strategy, combining both a “close to its production structure that uses most of its existing capabilities” (we shall call it, “close-to-home”) and a “bit further away from its production structure that requires learning new capabilities” (we shall call it “the-big-jump”) approach.

Regarding the close-to-home approach, this means that we should not ignore a country’s comparative advantage. This means that if it is a country with rich natural resources and thriving agriculture, oil, and mining sectors, it probably, as we already said, has a comparative advantage in primary goods. This means that space applications must take this into consideration. That is, IP should focus on applications on agriculture, preferably by using the existing production structure the country already has, that is, the knowledge and capabilities it has already acquired. Fomenting this type of technology is aligned with a close-to-home approach in two ways: it uses its resources efficiently and its existing space sector knowledge, capabilities, and production structure.

But as we said, we need to diversify. And diversification means not only in terms of strategy but also in markets and a good way to do this is through exports. Companies in the space sector typically diversify government risk by having operations in related sectors but a more interesting way of doing so is through exports. ¹⁶ This keeps them focused in the space sector, while diversifying their clients—as macroeconomic shocks in a country are not necessarily correlated with shocks across the world. So, our SIP should also consider export incentives.

And what about the-big-jump approach? As we said before, the-big-jump approach means choosing to produce goods that are further away from one’s production structure and that require learning new capabilities. Nobody ever did this without government intervention. And even with government intervention, sometimes results do materialize, and policies fail. Import substitution is an example of the big jump.

The space sector is usually a by-product of a big jump. Many countries in the mid-20th century began investing in the sector through public missions and, therefore, developed knowledge, capabilities, and the sector itself. The classic example of this type of approach, which led to significant advancements in the space sector, is the Apollo program. Conceived and initiated by the government with the partnership of private companies, it resulted in various innovations, thus creating a “goal-oriented political economy.” ⁵

A big jump means dreaming big, going beyond your current production structure. Mazzucato ¹⁴ and Mercure et al. ¹⁵ caution, however, that policy is not neutral, that is, policy is responsible for choosing our technology paths. So, it should be clear that this is a choice (as the “close-to-home” proposal also was). However, choosing a technology path does not mean choosing a company. It is more than that; it is about choosing the business or innovation that will bring positive results to society. In other words, “picking outcomes” ⁵ are capable of driving other sectors and generating economic growth. In this sense, space activity has this characteristic—not only technological advancement but also job creation and the development of productive chains.

As we mentioned before, regular space policies tend to be defense-focused and politically oriented. Obviously, each country has its own goals and principles embedded on their own space policies. However, in general, these policies include the regulation and promotion of space activities and exploration; attention to environmental and defense concerns; discussion of terms of cooperation and the role of that country in the international arena and diplomacy regarding space issues; funding issues; and the advancement of technological, economic development, and commercial activities.

Nevertheless, even when they contemplate economic and industrial development, they usually focus on supply-side issues, aiming at capacity development and overlooking the needed (domestic) market demand or the full space value chain that space goods and services are engaged in. Or yet, the development of productive capacity is subordinated to other interests, such as better geopolitical positioning and defense issues—for example, a country may wish to build a rocket or a large satellite in a government project and the consequent local economic activity generated by this project is a happy by-product of this geopolitical goal. That is, they do not consider commercial interests, industrial and economic development, growth, and diversification as ends in themselves, but rather as components of a broader political agenda.

This made sense when the space sector was, indeed, more politically and defense oriented. We are not saying that is not the case anymore, but discussions on the New Space phenomenon have shown how commercial issues have gained much more prominence in recent years. ¹⁷ Studies about the space economy have proliferated in recent years, even without a clear theoretical framework or definitions, ¹⁷ but it is clear that traditional space policy needs to be updated.

So how can we define an SIP? An SIP is a space policy in which technological advancement, economic development, and commercial activities, including environment and well-being concerns, are prioritized. That is, the hierarchy among issues is inverted: If earlier projects had a geopolitical goal and industrial and economic development was seen as by-product of that, current projects and policies have an industrial and economic development goal, and this may lead to (positive) geopolitical consequences as a by-product. That is, a country with a robust private space system will have attracted investments, launches, and interesting projects in a virtuous circle, reducing government dependency. An SIP should create a favorable environment for the development of technical capabilities and innovations that include the public sector, private initiative, and educational and research institutions.

Of course, this is not for every country out there. Some countries choose to have a space policy with clear and strong national security concerns in which commercial issues, although important, take second place. Other countries may have such underdevelopment space sectors that they need first to establish themselves as a player to them to move on to an SIP.

Leloglu and Kocaoglan ¹⁸ argue that there are several advantages to defining an IP for the space sector, such as the return on investment to the economy, thus promoting development. Even considering that the construction of remote sensing satellites may not fully recover costs through image sales, the specialization and knowledge acquired in certain subsystems or services can generate export capacity. The development of a space industry can help prevent “brain drain,” a common issue in emerging countries. The loss of expertise due to the departure of researchers and scientists would impact the evolution of innovation systems.

Additionally, acquiring essential systems for space activities makes countries partially dependent on specific manufacturers, as switching from one system to another entails high costs. The space industry also generates spillover effects in other technological areas, further stimulating economic development. By producing its own satellites, a country can conduct its own missions, ensuring that its needs are met independently of satellites provided by other nations. Finally, a strong space industry fosters education and scientific research. Space achievements inspire the population and spark young people’s interest in science and technology.

What are the instruments used for this SIP? Typically, an IP can be achieved by adopting supply or production and demand incentives. Supply or production incentives aim to increase capacity, productivity, and the competitiveness of industries. Demand incentives usually focus on consumption or market expansion.

Traditional space policies also have failed to become IPs because even when they consider incentives for the production of space goods, their view is limited, and they do not act in an integrated way that considers that the market (or inputs) for space goods and services is sometimes beyond the scope of the sector itself. ¹⁹

Supply incentives include production subsidies that aim to reduce production costs, stimulate innovation, or encourage the growth of specific industries. However, World Trade Organization and General Agreement on Tariffs and Trade have specific rules against some types of subsidies, but there are interesting exemptions. Some of these exemptions relate to subsidies related to regional development, especially in least developed areas in a country, and those related to infrastructure and to research and development (R&D). This means that, if used wisely, subsidies can stimulate production and also foster economic development and equity.

We can also mention tax incentives and credits that can be used as incentives for investment in R&D and for the use of new technologies. Many times, these incentives are not used due to the precarious fiscal situation many governments are in. However, the idea is that the production generated, jobs created, and, therefore, the new revenue more than compensate for what the government forwent with the initiative. Here, we can also mention the creation or use of existing industrial zones and clusters such as the Manaus Free Zone in Brazil or the Colón Free Zone in Panama, which create geographical clusters for industries, while providing specific incentives.

Another possibility is the use of subsidized credit and finance provision, given that innovation and the space sectors involve uncertain, large and long projects that typically private financial markets are unwilling to fund. This opens the path for an active role of development banks, both nationally and internationally and of innovation agencies that must consider market failures that are typical of technology investment.

A further instrument that can be adopted on the supply side is cooperation between private companies and the government, that is, public–private partnerships (PPPs), in order to promote technological development and innovation in the space sector. The government’s participation in these agreements can provide security for private investors, as it can help mitigate the risks of this sector, as well as enhance the competitiveness of the national industry.

Given that the space sector is a high-technology sector, we must also consider training and educational programs designed to provide a skilled workforce. ⁶ Focus should be not only on higher education and on space-related skills but also on vocational education and training to bring companies and educational institutions closer together. ²⁰ Also, it is important to show society how transversal these technologies are and to foster the view that space technology is part of a chain and that downstream sectors are highly dependent on them. This means training less skilled workers in applications as well.

Research is also important, so direct funding of R&D activities and tax incentives, but with the concern of funding late-stage projects as well and not only basic research must also be used. In this case, it is important to consider the stages of investment in research. Clearly, investing in basic science is essential, as the results of academic research can spill over into various fields. However, this does not guarantee that they will be incorporated into the market. Therefore, for innovation to take place, support is needed throughout the entire process, including applied research, idea evaluation, pre-commercial testing, consolidation of commercial viability, and production scaling. By ensuring financial support, the government can reduce the risks for companies seeking to transform scientific research into commercial solutions.^14,21

Regarding demand incentives, we can consider trade protection measures, especially for new industries against established foreign competitors and export promotion, which include subsidies, credit, and access to market for a better product placement abroad.

To create demand domestically, several instruments can be used. Public procurement with specific clauses favoring domestic suppliers and specific technologies can also be an efficient way to create demand for a new technology. When it comes to private consumers, tax incentives and credits can be used as well (e.g., firms that use flood management sensors and drones could receive tax incentives and credits).

Apart from these incentives, it is important to propose policies to address institutional challenges that may prevent policy from achieving its full potential. These include a clearer benefit distribution between companies, research institutions, and government in terms of intellectual property, clear regulatory policies regarding orbital and suborbital flights, and other relevant issues relating to the use of (and creation of new) launch centers. Passing laws are not sufficient to change long-standing cultural practices and other protocols, but most successful changes have benefited from a demonstration effect, that is, a few early small success stories that were very well-documented and advertised and helped shape the narrative toward a new environment.

So, a good SIP policy on the strategic level would be a diversification of a close-to-home and a big jump approach, which may mean different things for different countries, depending on their resources and production capacity. On the operational level, it would include a set of supply and demand instruments like the ones mentioned here, plus institutional policies that address possible shortcomings that may hinder industrial and economic development.

It should be clear, however, that no changes will come overnight. That said, catching up is something that is better to start sooner than later.

THE NEW BRAZIL INDUSTRY PLAN AND THE SPACE SECTOR

In order to reverse a long process of deindustrialization, the Lula government launched the New Industry Brazil (NIB) document in early 2023, ²² the new Brazilian IP, which establishes guidelines for neo-industrialization in the country until 2033. It is a long-term policy consisting of various public instruments that should support the productive sector throughout the process. Thus, the objectives of the NIB are “(i) to stimulate technical progress and, consequently, national productivity and competitiveness, generating quality jobs; (ii) to better utilize the country’s competitive advantages; and (iii) to reposition Brazil in international trade.” ²³

The NIB is oriented toward six missions focused on expanding autonomy, ecological transition, and modernizing the country’s industrial park. ²⁴ Among these missions, Mission 6—Technologies of interest for national sovereignty and defense—stands out, including some actions for the space sector. Furthermore, priority production chains were identified for each mission, with launch vehicles, satellites, and radars listed for Mission 6, ²⁵ in addition to aspirational goals for 2033 to achieve 75% mastery of critical defense technologies, and intermediate goals for 2026 to achieve 55% mastery of critical defense technologies. ²³

The main instruments for operationalizing IP are financial instruments, improvement of the business environment, and the use of the State’s purchasing power. Among the financial instruments, credit lines, grants, and subsidies stand out. Regarding the business environment, the aim is to increase competitiveness, promote trade, and open new markets. Finally, regarding the State’s purchasing power, state action is foreseen in the infrastructure, energy, health, and defense sectors.

Public investments of approximately R$300 billion have been allocated to finance the NIB until 2026 through public financial institution, the National Bank for Economic and Social Development (BNDES). Total investments, both public and private, are expected to reach approximately R$3.4 trillion by the end of 2026. ²³ For the 2023–2026 period, Mission 6 is projected to receive approximately R$112.9 billion, including R$79.8 billion from public sources and R$33.1 billion from the private sector. ²⁶ This aims to guarantee Brazilian dominance in the areas of satellite development, launch vehicles, and radars.

The idea behind the NIB is to guide the State, through its missions, in financing key activities that can boost economic growth, not only through public resources but also with the participation of private actors. Despite presenting an innovative, mission-oriented approach and highlighting important points of an IP advocated by some authors^4,5,14 (Rodrik, 2004), such as the government’s role in promoting actions, mobilizing financial instruments and public and private resources, prioritizing activities and technological innovation, and defining challenging goals, its effectiveness will ultimately depend on actual implementation rather than remaining merely a document or article.

Although the space sector has secured a spot in this initiative, the proposed goals are all focused on defense; the challenges and objectives are general; and it is not very clear how the proposed objectives will be executed nor how governance and monitoring of results will occur. Another question that arises is to what extent were the actions and projects defined in the 2022–2033 National Space Activities Program (PNAE) considered? The PNAE is being reviewed, but there is no information yet on whether the NIB will be considered in this new version. Thus, it is still too early to say that the NIB has a bias toward SIP, and this will only be perceived as results are delivered to society.

Although PNAE 2022–2033 represents an important shift in the formulation of long-term planning, it still lacks cross-sectoral action across other sectors, which could compromise the achievement of the planned projects. It is important that this instrument be developed in conjunction with other strategic agendas at the national level. With a focus on common, mission-oriented results, the State should be the protagonist in defining strategies that consider social and economic goals; therefore, it is fundamental that companies, government, and civil society work together to guarantee investments that create public value.

Since projects in this sector require long development periods, the inability to predict resources impacts delivery deadlines and may even lead to results that are no longer relevant to the country. The budget for space activities should be based on achievable results. Brazilian budgetary legislation provides for results-oriented planning. However, resource allocation often fails to consider the real impact of policies and instead focuses on political issues.

The publication of the Law on Space Activities was an important regulatory milestone for space exploration in Brazil, presenting possibilities that encourage private participation. By regulating items such as launch licenses, satellite operations, and access to infrastructure, the law sought to open opportunities for new space.

The law distinguishes between military and civilian authority, the latter represented by the AEB. It establishes the agency’s role as the competent authority to regulate and oversee civilian commercial activities, as well as to apply sanctions when necessary. However, it does not propose formal changes to the AEB in terms of administrative and budgetary autonomy, independence in management and decision-making—characteristics of a regulatory agency. An institutional review of the AEB, transforming it into a regulatory agency, could expand and strengthen its role in coordinating the National System of Industrial and Business Activities (SINDAE) in terms of more efficient regulation and standardization of the sector.

Although the law has brought about some progress, it does not mention or propose changes to the governance of the sector, which remains fragmented and lacks effective coordination among the various actors involved. This proliferation of entities weakens public–private relations in the sector by increasing segmentation and overlapping responsibilities. In this sense, it is essential that a regulation be proposed that clearly defines the institutional arrangement of the sector with well-defined roles and responsibilities.

Also in 2025, the creation of the public company Alada was approved. ²⁵ The company, under the responsibility of the Brazilian Air Force (FAB), will be responsible for managing the FAB’s space assets, including launch centers (Alcântara and Barreira do Inferno) and research laboratories. The idea behind the creation of the company was to facilitate the commercial exploitation of these assets, which could not be efficiently carried out while they remained entirely under public administration. This represents a way for the State to adapt to new forms of activity in the space sector.

Despite being an initiative that seeks to reduce state bureaucracy and facilitate commercial activity, from a private perspective, the company is still in its initial operational phase. The company’s operations offer the possibility of expanding the use of existing infrastructure, whether in centers or laboratories, due to greater flexibility in exploration and the ability to enter into contracts with private entities.

An innovative space sector presupposes the existence of an active IP in which public investments are strategic and there are clear mechanisms for sharing risks and rewards. ⁵ This article highlighted the importance of formulating an SIP as a strategic instrument for strengthening the productive and technological base of the space sector in Brazil.

FINAL COMMENTS

There has been much discussion about the strategic role of the space sector in a country’s economic development and growth. There is no doubt that space activity brings fundamental technological and scientific advancements, justifying the importance of investing in this sector, as it has the capacity to strengthen state sovereignty and promote innovation and the development of critical technologies that result in spillover effects throughout the economy.

This article proposes a discussion on the definition of what constitutes an SIP and its difference from regular IP. The analysis showed that despite institutional advances and the sector’s maturation, limitations still exist that compromise the country’s entry into the new scenario brought about by the new space approach.

The exploration of space activities remains divided between civilian and military projects; that is, there is no common objective internally within the public sector, which hinders the expansion of partnerships with the private sector. Furthermore, there is a weakness in the sector’s coordination due to the various existing institutional structures, impacting projects, such as delays and fragmentation of execution. An approach oriented toward more feasible missions, as proposed by Mazzucato, ⁵ in which the public interest prevails, following a logic of PPPs, could be an interesting alternative for the sector.

Still considering the approach proposed by Mazzucato, ⁵ it is important to adopt a mechanism of constant evaluation, with course corrections and guaranteed transparency, which allows for social control, performance evaluation, and can encourage institutional learning. In this sense, the PNAE presents general objectives and lines of action, but does not define goals and indicators, which makes monitoring implementation difficult.

Another point concerns the sector’s funding sources, which remain dependent on the public budget, and there are no more structured proposals for possible mechanisms to attract private funding for the commercial development of space exploration. The importance of government resources in the sector cannot be denied, given the inherent risks of space activity; however, the analysis of budget evolution has shown that the sector suffers from constant budget cuts, resulting in the discontinuation of investments.

Unlike traditional space policies, an SIP focuses primarily on boosting the productive sector, stimulating innovation, and promoting economic development. The contemporary scenario, marked by the rise of new space and the expansion of private sector activity, demands a new policy model that integrates instruments to support industry, research, and entrepreneurship.

In this sense, an SIP aims to align technological capabilities with market opportunities, boosting national competitiveness and promoting the generation of positive externalities, such as skilled jobs, attracting investment, and regional development. It is, therefore, an essential arrangement to consolidate the country’s presence in the global space economy and ensure sustainability and autonomy in a strategic sector.

AUTHORS’ CONTRIBUTIONS

A.C. developed the theoretical framework and conducted the final review of the article. L.H.F. conceived the main ideas, developed the initial application to Brazilian industrial policies, and prepared the first draft of the article. M.C.d.M.S. further developed the policy application, refined the analysis, and carried out the first substantive revision of the article. All authors contributed to the discussion of the results, approved the final version of the article, and agreed to be accountable for all aspects of the work.