Linkages between innovation policies and industrial development

Interventions to support the growth of industry across sectors and promoting learning and innovation can be complex and take varied forms. The production of knowledge entails negative externalities due to its non-rivalrous and non-exclusive nature; this occurs as no individual or firm has the incentive to produce knowledge since it can be shared at marginal costs and is difficult to exclude. Market mechanisms, financial flows, transfer agreements, production processes all embody some level of negative externalities due to the complexities of trading information, or designing contracts with incomplete or asymmetric information. But at the same time, knowledge production and sharing also embody positive externalities that benefit society at large. Society benefits from the creation of new knowledge, and in addition, if collaboration within the private sector were to take place it would lead to a positive externality for learning and innovation for a large number of actors, which has added benefits for society over longer periods of time.

Related Subject(s): Economic and Social Development