Chapter 26: Innovation Policy for Development: An Overview
1 Manuel Trajtenberg 26.1 INTRODUCTION2 This chapter is meant to provide a framework for thinking systematically about innovation policies for development, without venturing into specific, recipe-like policy recommendations. It does so by highlighting and dissecting the key issues that arise in this context, and by examining in some detail the case of innovation policy in Israel, which sheds light on both the promise and the limitations of such policies. There are a few guiding principles that inform the discussion. First, innovation for economic development has to be construed as a much broader notion than just the creation of new, technologically fancy gadgets; indeed, economic growth stemmed historically from widely distributed innovations of all kinds, both in products and in processes, generated by rank-and-file workers as much as by research and development (R&D) labs. The issue then is not just how to elicit say patentable innovations resulting from formal R&D, but how to provide both incentives and basic means for would-be entrepreneurs and small enterprises to engage in productivityenhancing investments. Second, the economic rationale for government support of R&D, while universal and hence applicable to developing economies as much as to developed ones, needs to be expanded and adapted to the economic environment and idiosyncratic problems of developing countries. In particular, the notion of spillovers should be re-examined in view of globalization, which makes the actual benefits from spillovers depend upon the relative intensity of inwards versus outwards flows. The working of ‘general purpose technologies’ (GPTs) is also...
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