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

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. (C) 2012 Elsevier B.V. All rights reserved.