Government financing of business R&ampD and innovation

Firms are major drivers of innovation but tend to underinvest in R&ampD. They engage in R&ampD to differentiate themselves from competitors, to be more successful in business and to increase profits. However, the costs and uncertainty of R&ampD, the time required to obtain returns on investment, and the possibility that competitors can capture knowledge spillovers – owing to the non-rival and non-excludable nature of R&ampD – often reduce their incentives to undertake R&ampD. The funding of innovative entrepreneurship raises further issues, addressed in the policy profile on Financing innovative entrepreneurship.