Building an Innovation Economy: Public Policy Lessons from Israel

Abstract

This paper provides a comprehensive analysis of those factors that were most important in the emergence of Israel’s innovation economy from 1990-2000. It contains a thorough survey of the leading academic ideas regarding preconditions for innovation (generally) and the preconditions for Israeli innovation over a 30 year period (specifically), including: public R&D grants, human capital acquisition, intellectual property rights, financial reforms, venture capital policy and cultural factors. In addition, this paper lends fresh empirical support to the notion that R&D grants and venture capital policies played an important role in Israel’s narrative, and distinguishes those factors which can be emulated by other governments and organizations (ie. deliberate policy-making or responses to market indicators) from those which resulted from historical chance (ie. luck). Finally, this paper draws from Israel’s experience to spell out some key public policy lessons and limitations of innovation policy.