Local Demand-Pull Policy and Energy Innovation: Evidence from the Solar Photovoltaic Market in China

47 Pages Posted: 1 Mar 2018

See all articles by Xue Gao

Xue Gao

University of Miami

Varun Rai

University of Texas at Austin - LBJ School of Public Affairs; University of Texas at Austin - Walker Department of Mechanical Engineering

Date Written: February 20, 2018

Abstract

Market demand is an important driver for inducing innovation, with many empirical studies supporting the demand-induced innovation hypothesis. Critiques of such studies, however, emphasize that new empirical evidence under clear policy context is needed. Furthermore, existing literature disagrees about whether the locus of demand-pull policy matters.

In this paper, we use empirical evidence from the distributed solar photovoltaic (PV) market in China to address the following questions:

(1) Is there evidence of demand-induced innovation?

(2) Does the effect of local demand-pull policy differ from the effect of non-local demand-pull policy on demand-induced innovation?

To address these questions, we develop and analyze a new database of PV balance-of-system (BOS) patents in the distributed PV market filed between 2005 and 2014 in China. We build regression models to test for evidence of demand-induced innovation as well as for the impact of local vs. non-local demand on innovative activity. Our results support the demand-induced innovation hypothesis and suggest that only local demand significantly induces PV balance-of-system innovations in the distributed PV market in China. The different effects of local demand and non-local demand emphasize the importance of local markets and local policies.

Keywords: Demand pull, Regional innovation, Patents, Comparative advantage, Solar PV

Suggested Citation

Gao, Xue and Rai, Varun, Local Demand-Pull Policy and Energy Innovation: Evidence from the Solar Photovoltaic Market in China (February 20, 2018). Available at SSRN: https://ssrn.com/abstract=3127052 or http://dx.doi.org/10.2139/ssrn.3127052

Xue Gao (Contact Author)

University of Miami ( email )

1300 Campo Sano Ave
110
Coral Gables, FL FL 33156
United States

Varun Rai

University of Texas at Austin - LBJ School of Public Affairs ( email )

2300 Red River St., Stop E2700
PO Box Y
Austin, TX 78713
United States

University of Texas at Austin - Walker Department of Mechanical Engineering ( email )

United States

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