Policy design for transition from imitation to innovation in emerging photovoltaic sectors using a system dynamics model

Technological innovation, as a main driver of companies' competitive advantage, is typically initialized by imitating existing technologies in nascent industries. However, many companies cannot actually succeed in developing new technologies through innovation. Policy intervention plays a crucial role in a successful transition from imitation to innovation in emerging sectors. This study presents a system dynamics model to capture the dynamics of such a transition in a national photovoltaic (PV) industry and help policymakers design effective policy interventions. The model is calibrated using real data collected from Iran's PV sector. Exploiting the underlying causal feedback structure, this study provides two policy recommendations to foster innovation in the PV sector. The first policy stimulates knowledge transfer from Iranian public research centers to the industry by designing a reward-based mechanism that encourages academicians to collaborate with the industry. The second policy develops national PV market so that financial resources required for joint innovation projects with the research partners are provided for the domestic firms. Accordingly, both solar feed-in tariffs and electricity prices in Iran should increase in a goal-seeking manner by 2050. The simulation results confirm that our proposed policy mechanisms would foster technological innovation in Iran's PV sector. •We develop a causal feedback structure explaining the dynamics of catch-up process.•We focus on transition from imitation to innovation in the Iranian PV sector.•A System Dynamics model is developed to capture the dynamics of this transition.•Two policy mechanisms are designed to foster innovation in Iran's PV sector.•The proposed SD model and policies provide policymakers with new insight.