The Quest for Adequate Technology-Push and Demand-Pull Policies : Country-Level Spillovers and Incentives for Non-Incremental Innovation

How to adequately foster technical change is a highly relevant and intricate question in the arena of policymaking. This study contributes to addressing this challenge, which is especially important in the area of environmental technologies that are subject to market failures. To shed more light on how the policymaker should use the policy archetypes demand-pull and technology-push support, we extend the current literature by addressing two gaps. First, the effect of domestic and foreign demand-pull policies on innovation in a country is addressed. Second, we examine the impact of demand-pull and technology-push on incremental and non-incremental innovation. We analyzed the case of photovoltaic power by combining a descriptive analysis of historic global innovation dynamics and a panel analysis on 15 countries over the period 1978 through 2007 with patent data. Three key findings emerged: First, we show that there are substantive innovation spillovers of national demand-pull policies. Second, demand-pull policies only foster incremental innovation and we find some anecdotal evidence that in phases of rapid induced market growth such policies even disincentivize non-incremental innovation. Third, only technology-push support is able to incentivize non-incremental innovation. Based on these findings, we discuss the need to globally coordinate demand-pull policies to circumvent the innovation-spillover problem and to incentivize non-incremental innovation via increased technology-push funding and design modifications of demand-pull policies