Innovation on demand—Can public procurement drive market success of innovations?

Public procurement has been at the centre of recent discussions on innovation policy. We embed it into the broader framework of public policies to stimulate innovation: regulations, R&D subsidies and basic research at universities. We synthesize the characteristics of all four instruments conceptionally and quantitatively compare their effects on innovation success for 1100 firms in Germany. We find that public procurement and knowledge spillovers from universities propel innovation success equally. The benefits of university knowledge apply uniformly to all firms. However, public procurement is especially effective for smaller firms in regions under economic stress and in distributive or technological services.