1. Innovative Capacity and Knowledge spillovers - A cross country analysis
Archana Pillai
ICFAI University, Hyderabad, INDIA
(Whitman School of Management, Syracuse University, New York)
May 10, 2007
Globelics Academy, Lisbon, Portugal

2. National Innovation Systems
Focuses on the description of organizations, patterns of activity (contributing to innovative behavior), identifies institutions and actors which interact with one another to carry out innovative activity (Edquist, 1997)
Studies in NIS in the cross country frame are:
Descriptive studies (Liu and White, 2001 for China)
Performance-comparison studies (Porter and Stern, 2002 for GCR)
Low and mid-income country studies (Viotti, 2002 – Brazil and South Korea)
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3. Relevance of the Study World Investment Report 2005
FDI in R&D investments in emerging economies
India and China are leading nations
Fishing out hypothesis
Increased globalization
Greater access to newer influences
Competitive pressures
Increased movement of labor
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4. Roots in Economic Theory
Endogenous technological change (Romer, 1990)
Integration into world markets will increase growth via knowledge spillovers
Grossman and Helpman, 1994
Endogenous innovation mandates monopoly profits and returns to be fully appropriable (but spillovers exist)
Knowledge is cumulative with each idea building on the last
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5. Cross-country performance studies
Porter, Stern and Furman (2002) – Research Policy for OECD
Coe and Helpman (1995) – European Economic Review – ‘International R&D spillovers’
Coe, Helpman and Hoffmaister (1997) – The Economic Journal - ‘North-South R&D spillovers’
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6. Innovative Capacity
Country’s potential to produce a stream of commercially relevant innovations
Measured using Patents (Griliches, 1990)
Patent Statistics as Economic Indicators
Other measures
No. of scientific and technical articles published
High-tech exports
Royalty received
Total Factor Productivity
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7. Knowledge Spillovers
Externalities from R&D which are generated in the research process and which is publicly accessible (Cohen and Levinthal, 1989)
Knowledge spills over the boundaries of a nation and becomes available to the rest of the world (is a quasi-public good and is non-rival in nature) Romer, 1990
Knowledge existing outside is linked to a nation through integration with the world – trade and foreign investment (International spillovers)
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8. Absorptive Capacity
Ability to recognize the value of new external knowledge, assimilate it and apply it for commercial purpose. (Cohen and Levinthal, 1989)
It plays a mediating role – it makes nations aware of existence of spillovers and benefits that accrue to a nation depend on its absorptive capacity
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9. Research Objectives
To measure innovative capacity of nations and compare across the clusters of nations
To identify the factors that facilitate innovation at the global level
To outline a framework for knowledge spillover analysis across countries
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10. Classification into homogenous groups
Income (based on GNI per capita done by the World Bank)
High (10726$ or more)
Middle (876$-10725$ )
Low (875$ or less)
Stages of development (by United Nations)
Developed nations
Emerging economies
Least developed nations
Geographic region
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11. Classification.. Innovation Index (KAM of the World Bank)
Ranks nations on the basis of a composite score of R&D expenditures, patents granted by the USPTO and number of researchers and technicians with scores from 0-10
Categorized into Leaders (7 and above), Followers (4-7) and Laggards (less than4)
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12. Income - Innovation Cross- tabulation
Innovation
Total 1 2 3 23 5 30
Income 6 9 7 22 4 12 20 36 33 26 29 88
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13. Data Sources Time frame
World Development Indicators Online (World Bank)
USPTO
International Trade Centre (UNCTAD/WTO)
World Bank’s Knowledge Assessment Methodology’s Innovation Index
Time frame
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14. Identifying the determinants of IC
Innovative capacity = f (Core Inputs, Spillover, [Input*Channel], Control)
Where IC is measured using patents, no. of articles published, high-tech exports, Royalty received and TFP
Core Inputs include R&D intensity, number of researchers and technicians and a nation’s own stock of knowledge (R&D stock, patent stock and article stock)
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15. Control represents the control variables
Innovative capacity = f (Core Inputs, Spillover, [Input*Channel], Control)
Where Spillover represents the direct spillover from the trading partners and rest of the world
Input*Channel represents the indirect spillover that accrue to a nation from its absorptive capacity
Control represents the control variables
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16. Spillovers defined.. Direct Spillovers
R&D stock (MTP and RoW)
Patent stock (MTP and RoW)
Article stock (MTP and RoW)
Indirect Spillovers (Absorptive Capacity)
R&D intensity*FDI/GDP,
R&D intensity*Royalty paid,
S&T*FDI/GDP
S&T*Royalty paid
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17. Control Variables…
Sectoral Concentration ratio (Value added in mfg and services/value added in agriculture)
International Telecom traffic (Intl Outgoing Minutes per subscriber)
Internet users (per 1000 people)
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18. Construction of R&D stock
Where is the number of lags and  is the rate of obsolescence; R is the R&D intensity (R&D expenditure as a percentage of GDP)
The rate of obsolescence is arbitrarily assumed between 5% to 25%
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19. Distributed Lag Model…
Where Yt is Patent & Xt is R&D Intensity
No of lags is based on Mean or Median lag
Rate of usefulness is determined by λk
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20. β λ Lag Determination & Rate of Usefulness for R&D stock
Estimates of Koyck type transformation
Leaders
Followers
Laggards β
0.2035
3.72E-08 λ
0.6505
0.4575
0.3582
Rate of Usefulness into the past k λk 1
0.65
0.46
0.36 2
0.42 -
Median Lag
1.61
0.89
0.68
Mean Lag
1.86
0.84
0.56
Coeff of beta and lambda are sig at 1% level except beta for
Laggards which is sig at 5% level
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21. Thank you
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