i Public procurement for innovation in small states. The case of Latvia Aleksandrs Cepilovs 1 Paper presented at XVII IRSPM Conference in Prague, 10-12 April, 2013 Panel: Public Procurement’s Place in the World: the Charge Towards Sustainability and Innovation Suggested citation: Cepilovs, A., (2014) Public Procurement for Innovation in Small States. The Case of Latvia. Public PƌoĐuƌeŵeŶts PlaĐe iŶ the Woƌld: The Chaƌge Toǁaƌds “ustaiŶaďilitLJ aŶd IŶŶoǀatioŶ, 93-130. Palgrave Macmillan Abstract Public procurement for innovation as a demand-side innovation policy instrument has been actively discussed from a number of perspectives, in both academic and policy-making circles. At the same time some countries (e.g. Latvia) continue to be reluctant to deploy this policy tool. A review of the relevant literature suggests that limited attention has been paid to analysing public procurement for innovation in the context of a small state. The aim of this paper is thus to contribute to the discussion of public procurement as an innovation policy instrument in a context of a small state. The paper draws upon several strains of literature, integrating perspectives of innovation systems theory and innovation policy research, focusing predominantly on demand-side policy tools and particularly on public procurement for innovation. Literature on small states and economic development and innovation in transitional economies is used in order to provide conceptual basis for understanding of the contextual peculiarities that affect implementation of policy measures. The empirical contribution on Latvia considers the developments of the National Innovation System, procurement system and public sector capabilities, analysed and discussed. The case study is complemented by analysis of data gathered through qualitative interviews with civil servants directly related to either innovation policy-making or public procurement on different levels of public administration. The results of the research suggest that public procurement for innovation has potential as an innovation policy instrument, a number of issues need to be addressed prior to attempting at implementation. The size of the state conditions constraints relevant to the successful implementation of complex innovation policy measures, including public procurement for innovation. These constraints include lack of resources (both financial and human), limited capacities in the public sector, a limited domestic market as well as limited demand power. The effects of size (smallness) in Latvia are complicated by the effects of economic transition, that affect development of domestic capabilities in the public sector as well as institutionalized practices not favourable to procurement of innovative products and services. Without addressing these issues, public procurement for innovation as a part of innovation policy mix may well fail to meet the assigned expectations. (Research for this study has been partially supported by the Estonian Science Foundation grants No.ETF9395, No.ETF8423, and the European Social Fund through the Estonian Research and Innovation Policy Monitoring Programme.) Key words: public procurement, innovation, small states, Latvia, case study 1 MA, MSc, Junior researcher at Ragnar Nurkse School of Innovation and Governance, Tallinn University of Technology. e-mail: aleksandrs.cepilovs@ttu.ee Postal address: Ragnar Nurkse School of Innovation and Governance, Tallinn University of Technology, Akadeemia tee 3, Tallinn, 12618, Estonia