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An Economic Analysis of Spillovers from Programmes of Technological Innovation Support

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An Economic Analysis of Spillovers from Programmes of Technological Innovation Support AN ECONOMIC ANALYSIS OF SPILLOVERS FROM PROGRAMMES OF TECHNOLOGICAL INNOVATION SUPPORT Report prepared by: ICF GHK James Medhurst Joel Marsden Angina Jugnauth Mark Peacock Jonathan Lonsdale MARCH 2014 An economic analysis of spillovers from programmes of technological innovation support The views expressed in this report are that of the authors and not necessarily those of the Department for Business, Innovation & Skills. 2 An economic analysis of spillovers from programmes of technological innovation support Contents An economic analysis of spillovers from programmes of technological innovation support 1 Contents .......................................................................................................................................... 3 Executive Summary ........................................................................................................................ 8 Summary of Key Findings ......................................................................................................... 9 Establishing the innovation system ......................................................................................... 10 Findings from the literature review .......................................................................................... 10 A general framework for assessing knowledge spillover potential from technology support programmes ............................................................................................................................ 12 Continuing challenges and ideas for the measurement of knowledge spillovers .................... 14 Application of the general framework to inform policy choices ............................................... 15 1 Introduction ........................................................................................................................... 18 1.1 Purpose and objectives of the project ............................................................................. 18 1.2 Context ............................................................................................................................ 19 1.3 Method of approach ........................................................................................................ 19 1.4 Structure of the report ..................................................................................................... 20 2 The capacity of innovation systems to generate spillovers ............................................. 21 2.1 Understanding spillovers ................................................................................................. 21 2.1.1 Market failures and the rationale for government intervention ................................ 21 2.1.2 Innovation and technology related spillovers........................................................... 22 2.2 Systems of innovation ..................................................................................................... 24 2.2.1 Open models of innovation ...................................................................................... 25 2.2.2 Features of an open innovation system................................................................... 27 2.2.3 The implications of a systems view of innovation .................................................... 28 3 An economic analysis of spillovers from programmes of technological innovation support 3 Features of innovation systems and the potential for the generation of spillovers ....... 29 3.1 Technology and the nature of innovation ........................................................................ 29 3.1.1 Type of technology .................................................................................................. 29 3.1.2 Type of innovation ................................................................................................... 30 3.1.2.1 The role of demonstrators in generating spillovers .................................................. 31 3.2 Market and industrial structure ........................................................................................ 32 3.2.1 Industry sector ......................................................................................................... 32 3.2.2 Competitive pressure .............................................................................................. 33 3.2.3 Other market factors ................................................................................................ 33 3.3.1 Protecting intellectual property ................................................................................ 34 3.3.2 Government funding and support ............................................................................ 36 3.4 Actors and the relationships between them .................................................................... 37 3.4.1 Cooperative agreements and strategic alliances..................................................... 37 3.4.2 Informal relationships .............................................................................................. 38 3.4.3 Geographic proximity and clustering ....................................................................... 39 3.4.4 Links with universities .............................................................................................. 40 3.5 Transmission mechanisms of different types of knowledge ............................................ 41 3.5.1 Different types of knowledge ................................................................................... 42 3.5.2 Different transmission mechanisms......................................................................... 42 3.5.3 Labour mobility ........................................................................................................ 44 3.5.4 Trade and foreign direct investment ........................................................................ 44 3.6 Absorptive capacity ......................................................................................................... 45 3.7 Conclusions ..................................................................................................................... 46 3.7.1 Suggested criteria for establishing the capacity for significant spillovers ................ 46 3.7.2 The measurement of spillovers ............................................................................... 47 4 An economic analysis of spillovers from programmes of technological innovation support 3.7.3 The identification of proxies ..................................................................................... 48 4 Implications for the development of an M&E framework .................................................. 50 4.1 Applying the findings and lessons from the literature review .......................................... 50 4.2 Open innovation systems as the starting point for spillover definition ............................. 50 4.3 The features of an open innovation system can be used as evaluation criteria to establish the likelihood of spillovers ........................................................................................................... 51 4.4 Establishing the presence of spillovers and their impact ................................................. 56 4.4.1 Initial intervention logic ............................................................................................ 56 4.5 Defining knowledge spillovers as the basis of ex ante assessment ................................ 57 4.6 A general framework for assessing spillover potential .................................................... 58 4.6.1 Scope for populating indicators ............................................................................... 59 Figure 4.4 Actors in an Open Innovation System ............................................................. 59 4.6.2 A scenario based approach to the estimation of knowledge spillovers ................... 62 4.6.3 Possible use of multi-criteria analysis to establish the relative potential of an intervention to generate spillovers .......................................................................................... 62 4.7 The scope for quantification of spillovers ........................................................................ 63 4.7.1 Moving towards monetisation of knowledge spillovers generated by support programmes ............................................................................................................................ 63 4.7.2 Use of overall market share estimates as an upper limit to spillover impacts ......... 64 4.7.2.1 TSB assessment of investment options .................................................................... 65 4.8 The scope to use the framework across TSB programmes ............................................ 65 4.9 Using the evaluation framework to inform investment decisions ..................................... 68 4.9.1 Deciding between closed and open innovation programmes .................................. 68 4.9.2 Deciding between different open programmes ........................................................ 68 5 Conclusions ........................................................................................................................... 70 5.1 The feasibility of establishing knowledge, network and market spillovers ....................... 70 5 An economic analysis of spillovers from programmes of technological innovation support 5.1.1 Establishing the innovation system ........................................................................
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