The impact of technology-push and demand-pull policies on technical change – Does the locus of policies matter?

Abstract

How to foster technical change is a highly relevant and intricate question in the arena of policymaking. Various studies have shown that technology-push and demand-pull policies induce innovation. However, there is a lack of work that distinguishes between the loci of policy support when assessing the policy–innovation relationship. We address this gap by shedding light on the question how the innovation effects of domestic and foreign demand-pull and technology-push policies differ. Using solar photovoltaic modules as a research case we conduct a panel analysis on 15 OECD countries over the period 1978 through 2005 with patent data. Three key findings emerged: First, our analyses find no evidence that domestic technology-push policies foster innovative output outside of national borders. Second, both domestic and foreign demand-pull policies trigger innovative output in a country. Third, we detect no indication that market growth induced by domestic demand-pull policies leads to more national innovative output than market growth induced by foreign demand-pull policies. Consequently, demand-pull policies create significant country-level innovation spillovers, which could disincentivize national policymakers to engage in domestic market creation. Based on these findings we discuss the need to establish supranational demand-pull policy schemes in order to address the spillover issue.