Innovation Policy for Development: an Overview STE-WP-34

This paper provides a framework for thinking about innovation policies for development. In such context innovation should be construed as a very broad notion that includes product and in process innovations of various sorts, generated by rank and file workers as much as by R&D labs. The economic rationale for government support of R&D needs to be adapted to the economic environment of developing countries; the notion of spillovers should be reexamined in view of globalization, and the same goes for the working of “General Purpose Technologies” (GPTs). The Israeli economy offers a fascinating illustration of great success in innovation, particularly in ICT, yet the benefits from the High Tech sector eluded the rest of the economy, giving rise to a “dual economy”. Understanding this outcome provides valuable insights for the design of growth-promoting innovation policies. Lastly, the paper discusses the policy corollaries that emerge from the analysis, and in particular the main levers which innovation policies for development should act upon: skills formation, provision of incentives, access to information, and availability of finance.