" Innovation Policy in International Markets " Wzb Conference on Industrial Organization Complementarities in Innovation Policy Complementarities in Innovation Policy *

This paper develops a framework for testing discrete complementarities in innovation policy using European data on obstacles to innovation. We propose a discrete test of supermodularity in innovation policy leading to a number of inequality constraints. We apply our test to two types of innovation decisions: to innovate or not, and if so, by how much. Our results suggest a considerable amount of complementarity, with some industries even displaying complementary across all policies. Moreover, we find that the four policies we consider (finance, internal human capital, external knowledge, and regulation) are interrelated in all industries. JEL Code: L5, O31,O38 We like to thank Dietmar Harhoff, Bernard Sinclair-Desgagne, David Soskice, two anonymous referees and the editor Xavier Vives for their detailed comments. We also like to thank Susan Athey, Marcel Dagenais, Astrid Jung, Jacques Mairesse, and Franz Palm as well as the participants of the WZB-Cirano workshop on “Innovation and Supermodularity”, June 15-17, Montreal. Julio Rosa provided competent research support. We acknowledge funding form the GAAC project on “Impediments to Innovation: A Complementarities Approach”, by the research network 'Product Markets, Financial Markets and the Pace of Innovation in Europe' (Contract no.: HPRN-CT-2000-00061) of the RTN Program of the European Commission, by the Social Science and Humanities Research Council of Canada strategic grant “Challenges and Opportunities of a Knowledge-Based Economy”, and by Statistics Canada. All remaining errors are ours.