No 2020/5 Unlocking the radical potential of German innovators How can R&D policy foster radical innovation?

Abstract

Recently, the outstanding potential of radical innovations has been acknowledged to foster the economic development of countries and regions. However, due to market imperfection, economic actors do not engage in radical innovation to a socially desirable degree. Hence, governments have established measures to compensate the under-investment in private R&D. For instance, in Germany and on the European level innovation agencies have been established to support innovations that move the technological frontier. In the light of this development, this study aims to answer the question whether direct funding of R&D projects in general and collaborative R&D grants in particular can support the emergence of radical innovations. Furthermore, this study scrutinises on the effect of policy-induced cross-innovation activities on radical innovation processes. Although many scholars advise policy makers to support activities inducing cross-fertilisation in order to enhance radical innovation, we lack evidence whether the funding of such research projects actually has an effect. The results can be of interest for scholars as well as policy makers aiming to support this type of innovation.