National specificities in development and economic policy

ESST Module 4: Unit 4Andreas Reinstaller

Shedding light on our ignorance: some core findings of the last lectures

Technical change: Temporarily increasing returns

underlie economic growth Technological change and

innovation are main determinants of productivity growth

Technology diffusion crucially affects economic growth

Technical change and productivity gains are accompanied by:

Changes in skill requirements (human capital)

Organisational change (changes of routines and heuristics – technological regimes)

Innovation: Innovation depends on scientific

progress Firms are important actors, but do

not act alone Innovation requires more than

R&D Innovation is a creative and

interactive process involving market and non-market institutions

Competitive markets are necessary but not sufficient condition for innovativeness

Network externalities, dynamics economies of scale are key sources of increasing returns

Misleading perceptions of the state of the world (by firms) leads to the process of creative destruction: industrial dynamics

How is knowledge produced: the linear model of Science Technology Innovation (STI)

Science (basic and applied), research and development

(knowledge production)

Schools, universities, vocational education(knowledge mediation)

Production of commodities(knowledge application)

Example of a linear model: How Research is viewed in the Endogenous Growth Model by Aghion and Howitt (1992)

W ork force

K n ow led gemax

tA

Inno vations[specific to each sector]

In term ediate good

P roduction of consum ption goods

T echnolog y spillo ver[from inno vation to a ll sectors]

W ork force for p roduction[specific to each sector]

)( tx i)( tx i

1

0

)()( tYtY i

Implication:No feedback loop;technical change is a lineardevelopment. Society plays only insofar a role as providesthe means for investment.every new design/innovationis used and contributes to growth.

The generation of new knowledge as social construction: evolutionary reasoning

Potential markets

Sales andMarketing

redesignand

production

invention/design

Research and Development

Knowledge, learning by doing

Boundary spanning conditions

From Kline, S. J. and Rosenberg, N. (1986), An Overview on Innovation, in: Landau, R. and Rosenberg, N. (eds), The Positive Sum Strategy, National Academy Press: Washington DC, pp. 275-306

The meso-level: firm networks and clusters

Most important “types” of firm networks:

Supplier networks

Marketing networks

R&D Networks

The effects of networking

Why? Network topology and diffusion of information

Small world networks: increase diffusion speed of knowledge and while keeping the own (research) group homogeneous (i.e. cliquish). New knowledge is brought

into the group from outside, thus increasing the variety

Group remains homogeneous so that intense interaction + variety speed up integration of new knowledge into the research group

Graphics taken from: R.Cowan and N.Jonard (2000), MERIT Research Memorandum RM2000-018

Network characteristics: cliques

Cliques: core networks with high direct and indirect interaction (thus knowledge flows) of path-length n (multiplicity) - in this case between firms

The macro-level: National innovation systems (i)

“ a set of distinctive institutions which jointly and individually contribute to the development and diffusion of new technologies and which provide the framework within which governments form and implement policies to influence the innovation process. As such it is a system of interconnected institutions to create, store and transfer the knowledge, skills and artefacts which define new technologies”, J.S. Metcalfe (1995), “The foundations of Technology Policy: Equilibrium and Evolutionary perspectives”, in: P. Stoneman, Handbook of the Economics of Innovation and Technical Change, Blackwell, London (emphasis added)

National Innovation Systems II

The linkage structure of NIS’sAn NIS consists of institutions,

that formulate policy goals and co-ordinate (govt. agencies)

that finance and fund R & D (science funds, special loan programmes, etc)

that act as bridge between decision making and fund redistribution: research councils and associations

that are responsible for knowledge creation: private R&D labs, universities

That forster diffusion: technology transfer and diffusion, promotion of technology-based firms, human resource mobility

Facts: The degree of complexity of modern

technology requires a) specialisiation AND b) cross-disciplinary cooperation

Technology becomes more science based (science based patents increased from 17000 in 1987 to >50000 1994)

Labour is the most powerful transmission mechanism of “tacit knowledge”

Policy instruments for “high growth and innovativeness” goal:

Different depending on industrial structure, degree of development of knowledge

creation institutions given strength of science technology

linkages

A first analytical step: the specialisation pattern of a NIS

Where lies the intellectual and technological strength of a nation?

How does knowledge generation change in reaction to new policies, technological innovation, etc. ?

Revealed Technological Advantage (RTA) Science: e.g. France, Germany and Italy are

specialised in chemistry, physics, mathematics; USA wide spread

Engineering: e.g. Austria, Netherlands, Nordic countries, UK specialisation in clinical medicine;

Emerging Specialisation Patterns: Science

Emerging Specialisation Patterns: Patenting

NIS: Country similarities

NIS: strength of science technology linkages

The institutional level: relating performance to institutions: the organisation of an NSI

For a detailed discussion of relation between institutional settings and economic performance see: OECD (1999), Managing National Systems of Innovation, Paris