Sustainable industrial development in developing economies is fundamentally challenged by the need to reconcile economic growth imperatives with environmental constraints and social equity. Adopting an institutionalist perspective and drawing on developmental state theory, global value chains (GVCs) literature, and evolutionary political economy, this paper explores the state’s responsible role in steering sustainable industrial transitions. A systematic review of the literature published between 2019 and 2026 identifies five principal conceptual gaps: (1) the predominance of techno-centric approaches over institutional and systemic paradigms; (2) insufficient attention to accountability mechanisms in industrial policymaking; (3) the lack of an analytical framework for assessing green technology absorptive capacity at both firm and industry levels; (4) limited scholarly engagement with the state’s role in co-creating institutions that enable sustainable development; and (5) the absence of a systematic policy nexus linking industrial, trade, and environmental domains.
By integrating state capacity theory with evolutionary institutional economics, this article proposes a novel conceptual framework—the "Responsible Developmental State"—which rests on three pillars: institutional capacity building, smart conditionality in subsidy allocation, and inclusive stakeholder engagement. Outlining a research agenda for Iran, the paper underscores the necessity of moving beyond "picking winners" strategies toward a process of "collective discovery of green opportunities," while simultaneously fostering a sustainable national innovation system and enhancing technological absorptive capacity in key industrial sectors. The findings suggest that the effectiveness of states in achieving sustainable industrial development depends less on the sheer volume of investment and more on institutional quality, network cohesion among actors, and the state’s capacity for policy learning.