National specificities in development and economic policy ESST Module 4: Unit 4 Andreas Reinstaller

Shedding light on our ignorance: some core findings of the last lectures zTechnical change: yTemporarily increasing returns underlie economic growth yTechnological change and innovation are main determinants of productivity growth yTechnology diffusion crucially affects economic growth yTechnical change and productivity gains are accompanied by: xChanges in skill requirements (human capital) xOrganisational change (changes of routines and heuristics – technological regimes) z Innovation: yInnovation depends on scientific progress yFirms are important actors, but do not act alone xInnovation requires more than R&D xInnovation is a creative and interactive process involving market and non-market institutions xCompetitive markets are necessary but not sufficient condition for innovativeness xNetwork externalities, dynamics economies of scale are key sources of increasing returns yMisleading 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) Implication: No feedback loop; technical change is a linear development. Society plays only insofar a role as provides the means for investment. every new design/innovation is used and contributes to growth.

The generation of new knowledge as social construction: evolutionary reasoning Potential markets Sales and Marketing redesign and 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

The meso-level: firm networks and clusters Most important “types” of firm networks: zSupplier networks zMarketing networks zR&D Networks

The effects of networking

Why? Network topology and diffusion of information z Small world networks: increase diffusion speed of knowledge and while keeping the own (research) group homogeneous (i.e. cliquish). yNew knowledge is brought into the group from outside, thus increasing the variety yGroup 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 RM

Network characteristics: cliques zCliques: 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’s An NIS consists of institutions, ythat formulate policy goals and co-ordinate (govt. agencies) ythat finance and fund R & D (science funds, special loan programmes, etc) ythat act as bridge between decision making and fund redistribution: research councils and associations ythat are responsible for knowledge creation: private R&D labs, universities yThat forster diffusion: technology transfer and diffusion, promotion of technology-based firms, human resource mobility Facts: yThe degree of complexity of modern technology requires a) specialisiation AND b) cross-disciplinary cooperation yTechnology becomes more science based (science based patents increased from in 1987 to > ) yLabour is the most powerful transmission mechanism of “tacit knowledge” Policy instruments for “high growth and innovativeness” goal: z Different depending on yindustrial structure, ydegree of development of knowledge creation institutions ygiven strength of science technology linkages

A first analytical step: the specialisation pattern of a NIS zWhere lies the intellectual and technological strength of a nation? zHow does knowledge generation change in reaction to new policies, technological innovation, etc. ?  Revealed Technological Advantage (RTA) yScience: e.g. France, Germany and Italy are specialised in chemistry, physics, mathematics; USA wide spread yEngineering: 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 zFor a detailed discussion of relation between institutional settings and economic performance see: OECD (1999), Managing National Systems of Innovation, Paris