Study on Economy-wide Impact Assessment of Public Procurement for Innovation for New Emerging Industry: A Computable General Equilibrium Approach

Recently, there is growing interest in demand-side innovation policy to guarantee enough demand for innovative suppliers. Public procurement for innovation (PPI) is one of the representative demand-side innovation policies, and has been evaluated as the most efficient policy tool for stimulating innovation. Many countries allocate a large proportion of government spending to public procurement, and most public demand in some technologies or industries, such as energy, environment, healthcare, and construction, is generated by public procurement. Despite the interest and effectiveness of public procurement for innovation, there is little work on policy impact assessment of public procurement for innovation from an economy-wide perspective. Most previous research has been limited to case studies and qualitative analysis. However, since public procurement for innovation has not only a direct demand effect but also indirect effects related to production, private demand, and innovation, it is worthwhile to analyze the policy impact of public procurement for innovation with an integrational approach. This study analyzes the various paths of policy impact of public procurement for innovation with a literature review and investigates the economy-wide effect of public procurement for innovation with knowledge-based computable general equilibrium (CGE). Knowledge-based CGE model includes R&D related account such as R&D capital and R&D investment in order to investigate the impact of innovation policies. In addition, This study uses further-modified knowledge-based CGE model with the account of public procurement and electric vehicle industry which is the new emerging industry. Moreover, in the equation structure, this study includes the equation of learning effect between cumulative production and unit cost for production. This study addresses the question whether economy-wide policy impact assessment is necessary before policy implementation, especially for innovation and industrial policy in certain sectors. The integrational framework suggested in this study could generate numerical and quantitative evidence for ex-ante policy impact evaluation, and it could be utilized for other innovation and industrial policy and policy mixing.