A Toolkit of Policies to Promote Innovation

Innovation is the only way for the most developed countries to secure sustainable long-run productivity growth. For nations farther from the technological frontier, catch-up growth is a viable option, but this cannot be the case for leading-edge economies such as the United States, Japan, and the nations of Western Europe. For countries such as these, what are the most effective policies for stimulating technological innovation?
In this article, we take a practical approach to addressing this question. If a policymaker came to us with a fixed budget of financial and political capital to invest in innovation policy, what would we advise? We discuss a number of the main innovation policy levers and describe the available evidence on their effectiveness: tax policies to favor research and development, government research grants, policies aimed at increasing the supply of human capital focused on innovation, intellectual property policies, and pro-competitive policies. In the conclusion, we synthesize this evidence into a single-page “toolkit,” in which we rank policies in terms of the quality and implications of the available evidence and the policies’ overall impact from a social cost-benefit perspective. We also score policies in terms of their speed and likely distributional effects.

Nicholas Bloom, John Van Reenen, and Heidi Williams

American Economic Association

August 2019

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