Innovation Policy for Development: an Overview

This paper provides a framework for thinking about innovation policies for development; it does so by flashing up the key issues which arise in this context, and by examining in detail the case of innovation policy in Israel. A few premises guide the analysis: First, innovation for development should be construed as a broad notion that includes widely distributed innovations of all stripes, both in products and in processes, generated by rank and file workers as much as by R&D labs. Second, 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 extraordinary 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” and slow growth for the economy as a whole. 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.