Innovation Policy Overview

Topics: Innovation, Economic growth, Policy Pages: 33 (11992 words) Published: June 17, 2013
Fostering Long-term Economic Growth


Innovation policy studies try to understand how important innovation is in our increasingly competitive world and markets. They question government intervention to find the most effective way of helping innovation thrust forward, not only through private investment and subsidizing but through helping and backing up industries and firms which look as future leads for long term economic growth. When talking about innovation we tend to think about invention and creativity, but creativity means making a connection between or combining two elements that have not been previously combined (Feinstein 2006:31). Innovation goes much further in that changes can be made to existing products and uses feedback as a major input. There are also some that believe novelty with no identifiable value can’t have any application. The study of innovation policy shows this is only the beginning of a long and arduous process of implementation of technology, market adaptation, ‘competition vs. collaboration’, and the appropriability of the returns generated from it. To some authors this is even an on-going cycle with constant feedback which enables the further innovative process. Innovation policy tries to understand the context in which all of this occurs and how new technologies and these innovations in themselves are completely changing the market environments, structures and development costs.

Innovation systems, as well as the decisions brought forward by policy makers are subject to a great deal of subjectivity as well as external or uncertainty factors which could affect the final outcome. Thus, it is extremely difficult to make any empirical assessments or develop models which use present data. All the assumptions and conclusions offered in this paper are therefore of a theoretical kind, trying to provide insight through the analysis and compilation of knowledge provided by academic authors. This compilation offers merely a suggestion of the road to take when facing important innovation policy decisions, but also hopes to gather enough academic proof to validate the conclusions derived from this paper. Due to the ample fan of possibilities for research in the area of innovation and the brevity of this essay, there will be focus only on one hypothesis. The key question that will be attempted to be answered is what drives innovation and what can decision-makers do to help it move forward.

Economic value doesn’t have to be at the centre of every innovation, but it is safe to say that innovation is required for economic reasons. Even for developed Western nations it should be an important factor to take into account if they hope to maintain the prosperity and standard of living which they enjoy now. The European Union has made innovation one of the key factors to become the most competitive and dynamic region in the world, and listed this in their Lisbon Agenda for 2010 ().

To be able to understand how innovation policy is strictly related to competitiveness and at which moment in time it can be implemented, this paper defines innovation, its process and why it is increasingly accepted among policy makers, institutions and other agents, as a key resource for economic growth. Some authors believe it has been the leading factor for driving economic growth (Aghion, 2006).

The paper will close with a case study involving three European countries. The case study will try to prove through empirical data that the fore mentioned factors do actually affect economic growth, in a detrimental or positive way. The use of empirical data will establish a more reliable model, showing which factors are the most effective ones in helping a nation’s economic growth, and how the relevant countries have fruitfully achieved to foster them.


Innovation has been defined by numerous authors in many historical settings, and has been...
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