Working with the Market: The Israeli Experience of Promoting R&D in the Enterprise Sector and the Lessons for Developing Countries

The purpose of this paper is to analyse the various ways in which the Israeli Government is supporting R&D in industry and draw some lessons from this experience for Developing Countries. The Israeli experience is rather unique in the sense that it uses mainly one financial instrument, namely the research grants scheme implemented by the Office of the Chief Scientist (OCS). The effectiveness of this scheme in raising the nature of and extent of innovative activity in the country has been the subject of a very lively and informed debate in Israel. In this Discussion Paper I not only take stock of this debate but also subject it to a detailed empirical scrutiny. There are two basic conclusions. The phenomenal growth of the Venture Capital (VC) industry (originally promoted by the state) is now becoming a competitor to the research grant scheme. But the main lesson for Developing Countries is the fact that it is the adequate supply of high-quality human resource that has played a part in making the research grant scheme a successful instrument. The research grant scheme is thus an effective way for the state to work with the market in promoting innovations in enterprises