Public financing of innovation: new questions

Semieniuk, Gregor; Mazzucato, Mariana

Abstract

Economic theory justifies policy when there are concrete market failures. The article shows how in the case of innovation, successful policies that have led to radical innovations have been more about market shaping and creating through direct and pervasive public financing, rather than market fixing. The paper reviews and discusses evidence for this in three key areas: (i) the presence of finance from public sources across the entire innovation chain; (ii) the concept of ‘mission-oriented’ policies that have created new technological and industrial landscapes; and (iii) the entrepreneurial and lead investor role of public actors, willing and able to take on extreme risks, independent of the business cycle. We further illustrate these three characteristics for the case of clean technology, and discuss how a market-creating and -shaping perspective may be useful for understanding the financing of transformative innovation needed for confronting contemporary societal challenges.

Citation

Semieniuk, G., & Mazzucato, M. (in press). Public financing of innovation: new questions. Oxford Review of Economic Policy, 33(1), 24-48. https://doi.org/10.1093/oxrep/grw036

• Journal Article Type: Article
• Acceptance Date: Dec 11, 2016
• Online Publication Date: Feb 9, 2017
• Deposit Date: Jan 23, 2017
• Publicly Available Date: Jan 23, 2017
• Journal: Oxford Review of Economic Policy
• Print ISSN: 0266-903X
• Electronic ISSN: 1460-2121
• Publisher: Oxford University Press
• Peer Reviewed: Peer Reviewed
• Volume: 33
• Issue: 1
• Pages: 24-48
• DOI: https://doi.org/10.1093/oxrep/grw036
• Keywords: financing innovation, innovation policy, market failure theory, renewable energy finance, direction of innovation
• Additional Information: Additional Information : JEL classification: G20, H81, O33, O38, Q48