The unique demographic, economic condition and geographical location makes New Zealand an interesting case study for understanding the processes which foster innovation. New Zealand is a small and isolated economy which, at least in a textbook sense, is institutionally almost ideal for promoting local entrepreneurship and innovation. Yet, in spite of a macroeconomic and institutional framework which should be ideal for promoting innovation, the observed innovation performance of New Zealand is poor, and this is particularly noticeable in comparison with other small isolated countries such as Israel and Finland. The reasons for this poor performance are as yet unclear. It may be that the awareness of best practice and state-of-the-art thinking on innovation issues is less in New Zealand than might be hoped. This scenario would call for better training and human capital development. Alternatively, there may be grounds for believing that some of the structural determinants of innovation in New Zealand are different from those in other countries. In this case, some of the recipes for promoting innovation which are adopted in other countries may not necessarily be appropriate in New Zealand. This chapter aims to uncover the issues which drive innovation in New Zealand in order to assess the extent to which traditional innovation policy thinking is appropriate in the case of a small isolated economy.
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