This article examines the role played by demand in catching up and in leadership changes in green industries, motivated by the belief that demand-led catch-up is a prevalent pathway in such industries. The paper first examines stylised cases of sectoral green catch-up by China in which the local market and domestic demand played an important role before the sector started expanding globally. In particular, the focus is on three industries: wind, biomass and hydropower. Then it uses a history-friendly model to study the effects of a major increase in domestic demand (a ‘demand window’) in a green industry. The baseline simulation first examines the effects of a demand window in promoting learning and capability building by latecomers and in triggering a catch-up process. Then, the counterfactual simulations show that (a) a technological discontinuity which takes place after the demand window could reduce the effectiveness of the demand window in the catch-up process; (b) the specific timing of the demand window could significantly alter the dynamic patterns of catch-up; (c) protectionism is a necessary condition for the demand window to have its effect; and (d) regimes of slow capability accumulation could turn out to be beneficial for the latecomer when a technological discontinuity follows the demand window. These results can help policymakers in identifying key conditions related to demand-led catch-up strategies.
With R. Lema and F. Malerba. Industrial and Corporate Change, forthcoming