Are Different Innovation Policy Instruments Complements or Substitutes? A Microeconometric Evaluation Using Panel Data

Governments deploy a mix of different innovation policy instruments to stimulate firm-level innovation additionality. Firms often receive multiple instruments simultaneously, and additionality can depend on interactions within... [ view full abstract ]

Governments deploy a mix of different innovation policy instruments to stimulate firm-level innovation additionality. Firms often receive multiple instruments simultaneously, and additionality can depend on interactions within this instrument mix. Depending on how consistent different instruments are with one another in terms of their underlying rationales, goals, and implementation modes, and how stable this consistency is over time, interaction effects can be complementary, substitutive or neutral. Consistency is thus an important means of improving the effectiveness and efficiency of the instrument mix at achieving policy objectives. This has important implications for policymaking. To explore these implications, we build a conceptual framework for the ex-ante and ex-post impact evaluation of innovation policy instrument mixes. Applying this framework, we construct a unique panel dataset capturing the core innovation policy instruments available to firms in Ireland, and employ a novel microeconometric technique to estimate the degree of temporal consistency within the instrument mix. Our results highlight the importance of temporal dynamics when evaluating innovation policy instrument mix consistency.