Academic journal article Innovation: Organization & Management

How Public Demonstration Projects Affect the Emergence of New Industries: An Empirical Study of Electric Vehicles in China

Academic journal article Innovation: Organization & Management

How Public Demonstration Projects Affect the Emergence of New Industries: An Empirical Study of Electric Vehicles in China

Article excerpt

1. Introduction

Public-funded demonstration projects ( hereafter referred to as demonstration projects) are widely used in modern economies as policy instruments to reduce obstacles to innovation (Brown, Livesay, & Lux, 1993;OTA,1978). However, the effectiveness of demonstration projects has repeatedly been called into question, especially with regard to technology diffusion (DOE, 1978). Some supporters of 'free-market economics' claim that governments should avoid recommending a specific technology to the public, and that public demonstration projects are ineffective when innovators receive resources and opportunities to explore unknowns (Brown et al., 1993; Eads & Nelson, 1971). Researchers have argued that demonstration projects face practical problems when promoting certain types of industrial innovation, namely those related to energy (Lefevre, 1984), especially when funded by a central government (OTA, 1978).1 From the 1980s to the early 2000s, academics were generally sceptical about the use of demonstration projects to promote innovation (Brown & Hendry, 2009).

In recent years, however, government intervention in the innovation process has received more attention, especially with regard to certain innovation phases that are threatened by market failure and high levels of uncertainty during the development of a commercially viable product, i.e. the 'uncertain middle' ground of innovation (Hendry, Harborne, & Brown, 2010b). In addition, as new industries emerge with increasing rapidity and achieve ever-greater levels of sophistication, demonstration projects seem more suitable policy instruments for reducing uncertainty and expediting the innovation process (Lefevre, 1984). They are perceived to bridge the 'uncertain' gap between the early stages of research and development and the market-adoption phase without intervening in the market by 'picking winners' for deployment. Therefore, public demonstration projects have been increasingly adopted to promote the emergence of new industries (Hendry, Harborne, & Brown, 2010a). For example, since the prevalence of President Reagan's deregulation policy in the US in the 1980s, public demonstration projects have gradually taken on a more significant role in the policy packages designed by the Obama administration and the EU to promote technological and industrial innovation (Harborne & Hendry, 2009).

Many researchers have sought to determine whether and how demonstration projects affect technological proof (see 2.1); however, few studies have addressed their effects on innovation diffusion in the process of industrial emergence. Furthermore, demonstration projects in developing economies have received little attention. The governments of emerging economies are particularly likely to intervene to 'catch up' with other economies in the development of a specific emerging technology (Mowery, Nelson, & Martin, 2010a; Mowery, Nelson, & Martin, 2010b). For instance, China's government has a strong influence on industrial innovation, particularly against the historical backdrop of a centrally planned economy (Chen, 2010). Indeed, public demonstration projects have become one of the key policy instruments used to promote the emergence of strategic new industries in China, and especially to promote programmes in industries related to energy saving and environmental protection. In China's 12th Five-Year Plan on Strategic Emerging Industries, more than 13 national demonstration projects have been planned by the central government (CIEDS, 2013; Li, Zhou, Xue, & Huang, 2014; NDRC, 2012). However, this has stimulated intense debate regarding the effectiveness of such projects; the mechanisms by which they promote industrial emergence remain unclear to policy makers and researchers.

In this paper, therefore, we investigate the effectiveness of public demonstration projects in promoting innovation for industrial emergence. In addition, we explore the mechanisms by which such projects influence industrial innovation. …

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