Vertical vs. Horizontal Policy in a Capabilities Model of Economic Development

Alje van Dam and Koen Frenken

No 2037, Papers in Evolutionary Economic Geography (PEEG) from Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography

Abstract: Against the background of renewed interest in vertical support policies targeting specific industries or technologies, we investigate the effects of vertical vs. horizontal policies in a combinatorial model of economic development. In the framework we propose, an economy develops by acquiring new capabilities allowing for the production of an ever greater variety of products with an increasing complexity. Innovation policy can aim to expand the number of capabilities (vertical policy) or the ability to combine capabilities (horizontal policy). The model shows that for low-income countries, the two policies are complementary. For high-income countries that are specialised in the most complex products, focusing on horizontal policy only yields the highest returns. We reflect on the model results in the light of the contemporary debate on vertical policy.

Keywords: capabilities; the hump; complexity; innovation policy; vertical policy; innovation system; general purpose technologies; systemic policy; mission-oriented innovation policy (search for similar items in EconPapers)
Date: 2020-08, Revised 2020-08
New Economics Papers: this item is included in nep-ino and nep-tid
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Citations: View citations in EconPapers (1)

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http://econ.geo.uu.nl/peeg/peeg2037.pdf Version August 2020 (application/pdf)

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Working Paper: Vertical vs. Horizontal Policy in a Capabilities Model of Economic Development (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:egu:wpaper:2037

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