Innovation and government intervention: A comparison of Singapore and Hong Kong

Abstract

Government is one of the determinants for innovation capacity although its role and degree of involvement in innovation is debatable. Government intervention can be vital in supporting R&D and innovation as market alone cannot provide adequate incentives for knowledge production. Degrees of government intervention, however, vary in different economies and range from directive intervention by actively advising industrial policy and investing in selected areas, to facilitative intervention by creating positive environment and providing public goods for industry. This study uses Singapore and Hong Kong as two cases to explore the influence of government intervention on innovation performance. Singapore is known for strong government intervention while Hong Kong is famous for its positive non-intervention policy that minimizes the power of government in influencing the market. The comparison shows that innovation activities in Singapore are largely policy driven and dominated by big players, while in Hong Kong industry innovation is less active but the local industry has a dynamic innovation base contributed by small firms. Using a difference-in-differences analysis of USPTO patents filed by Singapore and Hong Kong, we find evidence for the effectiveness of government intervention on enhancing the technological significance and scope of innovation. The findings could shed light on the implication of government involvement in innovation.