Research Policy 36 (2007) 949–963 Public procurement and innovation—Resurrecting the demand side Jakob Edler ∗ , Luke Georghiou PREST/Manchester Institute of Innovation Research, Manchester Business School, University of Manchester, Harold Hankins Building, Manchester M13 9PL, UK Received 12 January 2007; received in revised form 26 March 2007; accepted 27 March 2007 Available online 18 May 2007 Abstract Demand is a major potential source of innovation, yet the critical role of demand as a key driver of innovation has still to be recognised in government policy. This article discusses public procurement as one of the key elements of a demand-oriented innovation policy. The paper starts by signaling the new significance of public procurement for innovation policy strategies at the EU level and in a range of European countries. It then defines the concept of public procurement and embeds this concept within a taxonomy of innovation policies. The rationales and justifications of public procurement policies to spur innovation are discussed, followed by a consideration of the challenges and potential pitfalls as well as appropriate institutional arrangements and strategies, including some recent empirical examples of good practice. It concludes by confronting the public procurement approach with two of the most common objections to it and by considering future prospects. © 2007 Elsevier B.V. All rights reserved. Keywords: Innovation policy; Public procurement; Demand and innovation; Concepts of demand-oriented policy; Public sector innovation 1. Introduction Demand is a major potential source of innovation yet the critical role of demand as a key driver of innovation has still to be recognised in government policy. Pub- lic demand, when oriented towards innovative solutions and products, has the potential to improve delivery of public policy and services, often generating improved innovative dynamics and benefits from the associated spillovers. Nonetheless, public procurement as an inno- vation policy has been neglected or downplayed for many years. In the 1970s, a number of empirical stud- ies explored the meaning of procurement for innovation (for an overview, see Mowery and Rosenberg, 1979; Rothwell and Zegveld, 1981; Rothwell, 1984). Rothwell ∗ Corresponding author. Tel.: +44 161 275 0919. E-mail address: Jakob.Edler@mbs.ac.uk (J. Edler). and Zegveld (1981) compared R&D subsidies and state procurement contracts without direct R&D procurement. They concluded that, over longer time periods, state procurement triggered greater innovation impulses in more areas than did R&D subsidies (see also Rothwell, 1984, p. 330). Geroski (1990, p. 183) also analysed the quantitative and qualitative meaning of state demand for innovation and concluded that procurement policy “is a far more efficient instrument to use in stimulating inno- vation than any of a wide range of frequently used R&D subsidies”. In a more recent survey of more than 1000 firms and 125 federations, over 50% of respondents indicated that new requirements and demand are the main source of innovations, while new technological developments within companies are the major driver for innovations in only 12% of firms (BDL, 2003). An analysis of the Sfinno data base collecting all innovations commercialized in Finland during between 1984 and 1998 (Palmberg, 2004; 0048-7333/$ – see front matter © 2007 Elsevier B.V. All rights reserved. doi:10.1016/j.respol.2007.03.003