1. Innovation Economics Class 4

2. Technological change – introduction of production technique Technological change – introduction of production technique Innovation – all possible changes in the production and organization of the firm Innovation – all possible changes in the production and organization of the firm

3. Inducement mechanisms that lead the firms to introduce new technologies Inducement mechanisms that lead the firms to introduce new technologies Localized generaton of general and contingent technologies Localized generaton of general and contingent technologies Technology and location interact in many ways Technology and location interact in many ways Performance is influenced by the specific characteristcs of the economic system Performance is influenced by the specific characteristcs of the economic system Too much emphasis has been put by economists on the firm as the single relevent unit of analysis Too much emphasis has been put by economists on the firm as the single relevent unit of analysis

4. More attention given to the environment and the role of economic structure More attention given to the environment and the role of economic structure Localized inducement mechanisms Localized inducement mechanisms Innovation as a result of local search induced by divergence between expectations and facts Innovation as a result of local search induced by divergence between expectations and facts Myopic agents affected by bounded rationality Myopic agents affected by bounded rationality Cannot calculate all benefits and costs.. Each firm cannot be analyzed independently Cannot calculate all benefits and costs.. Each firm cannot be analyzed independently Reactive and sequential decision making Reactive and sequential decision making

5. Introduction of new technology requires investment of resources to conduct research and development, acquire external knowledge, take advantage of technological opportunities, to accumulate and articulate the benefits of experience, tacit knowledge.. Introduction of new technology requires investment of resources to conduct research and development, acquire external knowledge, take advantage of technological opportunities, to accumulate and articulate the benefits of experience, tacit knowledge.. Unexpected changes in their business environment. Unexpected changes in their business environment.

6. Four baskets of variables Four baskets of variables Top down scientific opportunities. Bottom up technological opportunities Top down scientific opportunities. Bottom up technological opportunities Location of the sources of new knowledge whether they are internal to the economic system or exernal in other regions and other countries Location of the sources of new knowledge whether they are internal to the economic system or exernal in other regions and other countries Distinction between learning processes – learning by doing of learning by interaction Distinction between learning processes – learning by doing of learning by interaction Role of switching costs Role of switching costs

7. For a given set of incentives, tech. change will be general or contingent according to specific values of the parameters. For a given set of incentives, tech. change will be general or contingent according to specific values of the parameters. General tech. change consists of radical changes and shifts.. General tech. change consists of radical changes and shifts.. Contingent tech. change is the result of the incremental introduction of a myrid of small changes after the main shift effect has been generated. Contingent tech. change is the result of the incremental introduction of a myrid of small changes after the main shift effect has been generated. Result of learning processes associated with the use of new radical technologies. Result of learning processes associated with the use of new radical technologies.

8. Introduction of new technologies concerns not only competitors but also suppliers and customers. Introduction of new technologies concerns not only competitors but also suppliers and customers. Effects are both horizontal and vertical. Effects are both horizontal and vertical. Horizontal effects: changes in the competitive advantage associated wih the intro. of new superior techologies. Barriers to entry Horizontal effects: changes in the competitive advantage associated wih the intro. of new superior techologies. Barriers to entry Further innovations of the firms in the same industry Further innovations of the firms in the same industry

9. Vertical effects Vertical effects Key industries; downstream industries Key industries; downstream industries Ex: intro of synthetic fibers – effect on suppliers of textile industry… Ex: intro of synthetic fibers – effect on suppliers of textile industry… Effect of innovation on the overall system Effect of innovation on the overall system Related variety Related variety Differentiated knowledge bases Differentiated knowledge bases Distributed knowledge networks. Distributed knowledge networks.

10. A focus on constructing regional advantage requires an ‘unpacking’ of what makes territorial agglomerations important for innovation and growth A focus on constructing regional advantage requires an ‘unpacking’ of what makes territorial agglomerations important for innovation and growth Unpacking along the following three dimensions: (1) related variety, (2) differentiated knowledge bases, and (3) distributed knowledge networks, which taken together provides the fundament for formulating sectoral transcending platform oriented policies. Unpacking along the following three dimensions: (1) related variety, (2) differentiated knowledge bases, and (3) distributed knowledge networks, which taken together provides the fundament for formulating sectoral transcending platform oriented policies. A better basis for - and, thus, improve the capacity of - policy makers on different geographical levels to formulate dedicated and specific innovation support customized to different regions and sectors. A better basis for - and, thus, improve the capacity of - policy makers on different geographical levels to formulate dedicated and specific innovation support customized to different regions and sectors. Especially important is, of course, to be able to formulate and pursue the formation of necessary capabilities in regions. Especially important is, of course, to be able to formulate and pursue the formation of necessary capabilities in regions. existing capabilities to construct regional advantage. Source: DG Research. Constructiong Regional existing capabilities to construct regional advantage. Final Report. Brussels, 2006.

11. Knowledge Bases AnalyticalSyntheticSymbolic Innovation by creation of new knowledge Innovation by application or novel combination of existing knowledge Innovation by recombination of existing knowledge in new ways. Importance of scientific knowledge often based on deductive processes and formal models Importance of applied, problem related knowledge (engineering) often through inductive processes Importance of reusing or challenging existing conventions Research collaboration between firms (R&D department) and research organizations Interactive learning with clients and suppliers Learning through interaction in the professional community, learning from youth/street culture or 'fine' culture and interaction with 'border' professional communities. Dominance of codified knowledge due to documentation in patents and publications Dominance of tacit knowledge due to more concrete know- how, craft and practical skill Reliance on tacit knowledge, craft and practical skills and search skills

12. Example:How to transform an industrial district in crisis in the periphery of Europe? The case of the Barletta footwear district Example:How to transform an industrial district in crisis in the periphery of Europe? The case of the Barletta footwear district The evolution of the footwear district of Barletta tells a story of an industrial district in crisis in one of the most peripheral parts of Europe. Located north of the city of Bari in the South of Italy, the heydays of this district were in the 1970-1990 period, during which employment growth rates were sky-rocketing. Since the 1990s, it has been hit hard by a long and deep economic crisis. As other districts, the Barletta district, which is one of the very few districts in the South of Italy, has been confronted with increasing competition from low-cost countries like China. Till now, it has been unable to respond to the crisis, and its future prospects are dim. The evolution of the footwear district of Barletta tells a story of an industrial district in crisis in one of the most peripheral parts of Europe. Located north of the city of Bari in the South of Italy, the heydays of this district were in the 1970-1990 period, during which employment growth rates were sky-rocketing. Since the 1990s, it has been hit hard by a long and deep economic crisis. As other districts, the Barletta district, which is one of the very few districts in the South of Italy, has been confronted with increasing competition from low-cost countries like China. Till now, it has been unable to respond to the crisis, and its future prospects are dim.

13. The structure of the local knowledge network in the Barletta region is extremely weak, and many local firms are not connected (Boschma and Ter Wal, 2005). Firms tend to operate on their own, and they regard their own internal knowledge base as the most important source of knowledge. Firm-specific features like their absorptive capacity contributed to the innovative performance of the Barletta footwear firms, in contrast to external sources of knowledge. This dependence on internal sources of knowledge and the presence of quite weak local knowledge relationships may have something to do with a lack of social capital that is often found in the South of Italy (Evangelista et al., 2002). The structure of the local knowledge network in the Barletta region is extremely weak, and many local firms are not connected (Boschma and Ter Wal, 2005). Firms tend to operate on their own, and they regard their own internal knowledge base as the most important source of knowledge. Firm-specific features like their absorptive capacity contributed to the innovative performance of the Barletta footwear firms, in contrast to external sources of knowledge. This dependence on internal sources of knowledge and the presence of quite weak local knowledge relationships may have something to do with a lack of social capital that is often found in the South of Italy (Evangelista et al., 2002).

14. In practice, it has proved difficult in many cases to tackle this fundamental institutional problem in the South of Italy. This is certainly not something that can be solved in the short-term. That may already be too late anyhow for the majority of footwear firms in the Barletta district. It is expected that only a few large firms will survive, and these firms can only do so through the adoption of an international strategy in which at least footwear production will move out of the area. The example of the Barletta district suggests how difficult it may be to construct regional advantage in such circumstances, and how unrealistic it might be to expect that the district model that worked well in other more favourable parts of Italy is a panacea for the development of the South of Italy. However, this example also shows the strong need of intelligent policies in specialized regions that aim at broadening their regional economic base. In practice, it has proved difficult in many cases to tackle this fundamental institutional problem in the South of Italy. This is certainly not something that can be solved in the short-term. That may already be too late anyhow for the majority of footwear firms in the Barletta district. It is expected that only a few large firms will survive, and these firms can only do so through the adoption of an international strategy in which at least footwear production will move out of the area. The example of the Barletta district suggests how difficult it may be to construct regional advantage in such circumstances, and how unrealistic it might be to expect that the district model that worked well in other more favourable parts of Italy is a panacea for the development of the South of Italy. However, this example also shows the strong need of intelligent policies in specialized regions that aim at broadening their regional economic base. Sources: Boschma, R.A. and A.L.J. ter Wal (2005); Evangelista, R., Iammarino, S., Mastrostefano, V. and Silvani, A. (2002).

15. Trends in Industry Concentration Pattern of specialization across industrialized world: Pattern of specialization across industrialized world: Europe: Specialize in traditional industries, Europe: Specialize in traditional industries, Japan and US: Specialize in technology oriented industries Japan and US: Specialize in technology oriented industries

16. Clusters Industry cluster policies are a current trend in planning for economic development. Industry cluster policies are a current trend in planning for economic development. The focus of cluster policies is based on the recognition that firms and industries are interrelated. The focus of cluster policies is based on the recognition that firms and industries are interrelated. The idea is that ties among firms within clusters might be turned into competitive advantage for the region. The idea is that ties among firms within clusters might be turned into competitive advantage for the region.

17. ClusterNumber of Firms (1996) Change in Number of Firms (1996- 2000) Employment (1996) Change in Employment (1996-2000) Engineering31958,428853410,8 Production and Processing of Field Crops 1093-3,1127881-3,6 Stone Based Industry11656,31041047,9 Packaged foods and beverages 1286-5,61145070,6 Textile36686,140074710,3 Media and Communication 7098,2873029,8 Furniture61812,64486426,2 Total117345,111679398,3 Source: Akgungor, S. (2006). Geographic Concentrations in Turkey’s Manufacturing Industry”. Europen Planning Studies, vol 14, no.2. Industries With Close I-O Relationships in Turkey (Cluster Templates)

18. Engineering Cluster Primary Industries Mining of metal ores Mining of metal ores Manufacture of ceramic products Manufacture of ceramic products Manufacture of basic iron and steel Manufacture of basic iron and steel Manufacture of basic precious and non-ferrous metals Manufacture of basic precious and non-ferrous metals Casting of metals Casting of metals Manufacture of fabricated metal products, tanks, reservoirs and steam generators Manufacture of fabricated metal products, tanks, reservoirs and steam generators Manufacture of other fabricated metal products; metal working service activities Manufacture of other fabricated metal products; metal working service activities Manufacture of general purpose machinery Manufacture of general purpose machinery Manufacture of special purpose machinery Manufacture of special purpose machinery Manufacture of domestic appliances n.e.c. Manufacture of domestic appliances n.e.c. Manufacture of electrical machinery and apparatus n.e.c. Manufacture of electrical machinery and apparatus n.e.c. Manufacture of motor vehicles, trailers and semi-trailers Manufacture of motor vehicles, trailers and semi-trailers Secondary Industries Extraction of crude petroleum and natural gas Extraction of crude petroleum and natural gas Manufacture of medical, precision and optical instruments, watches and clocks Manufacture of medical, precision and optical instruments, watches and clocks Building and repairing of ships, pleasure and sporting boats Building and repairing of ships, pleasure and sporting boats Manufacture of transport equipment n.e.c. Manufacture of transport equipment n.e.c. Manufacturing n.e.c. Manufacturing n.e.c.

19. Production and Processing of Field Crops Primary Industries Growing of cereals and other crops n.e.c. Growing of cereals and other crops n.e.c. Farming of animals Farming of animals Agricultural and animal husbandry service activities, except veterinary activities Agricultural and animal husbandry service activities, except veterinary activities Manufacture of vegetable and animal oils and fats Manufacture of vegetable and animal oils and fats Manufacture of grain mill products, starches and starch products Manufacture of grain mill products, starches and starch products Manufacture of preparad animal feeds Manufacture of preparad animal feeds Manufacture of sugar Manufacture of sugar Manufacture of cocoa, chocolate, sugar confertionery and other food products n.e.c. Manufacture of cocoa, chocolate, sugar confertionery and other food products n.e.c. Manufacture of tobacco products Manufacture of tobacco products Manufacture of fertilizers and nitrogen compounds Manufacture of fertilizers and nitrogen compounds Secondary Industries Manufacture of alcoholic beverages Manufacture of alcoholic beverages Manufacture of pesticides, other agro-chemicals and paints, varnishes Manufacture of pesticides, other agro-chemicals and paints, varnishes Manufacture of rubber products Manufacture of rubber products

20. Stone-Based Industry Primary Industries Mining of coal and lignite Mining of coal and lignite Extraction of crude petroleum and natural gas Extraction of crude petroleum and natural gas Quarrying of stone, sand and clay Quarrying of stone, sand and clay Mining and quarrying n.e.c. Mining and quarrying n.e.c. Manufacture of pesticides, other agro-chemicals and paints, varnishes Manufacture of pesticides, other agro-chemicals and paints, varnishes Manufacture of glass and glass products Manufacture of glass and glass products Manufacture of ceramic products Manufacture of ceramic products Manufacture of cement, lime and plaster related articles these items Manufacture of cement, lime and plaster related articles these items Cutting and finishing of stone and man. of other non-metallic mineral products n.e.c. Cutting and finishing of stone and man. of other non-metallic mineral products n.e.c. Secondary Industries Forestry, logging and related service activities Forestry, logging and related service activities Fishing Fishing Mining of metal ores Mining of metal ores Manufacture of basic chemicals, plastics in primary forms and os synthetics rubber Manufacture of basic chemicals, plastics in primary forms and os synthetics rubber Manufacture of rubber products Manufacture of rubber products Building and repairing of ships, pleasure and sporting boats Building and repairing of ships, pleasure and sporting boats

21. Packaged Food Products and Beverages Primary Industries Fishing Fishing Production, processing and preserving of meat and meat products Production, processing and preserving of meat and meat products Processing and preserving of fruit and vegetables Processing and preserving of fruit and vegetables Manufacture of dairy products Manufacture of dairy products Manufacture of bakery products Manufacture of bakery products Manufacture of alcoholic beverages Manufacture of alcoholic beverages Manufacture of soft drinks; production of mineral waters Manufacture of soft drinks; production of mineral waters Secondary Industries Growing of vegetables, horticultural specialties and nursery products Growing of vegetables, horticultural specialties and nursery products Processing and preserving of fish and fish products Processing and preserving of fish and fish products Manufacture of cocoa, chocolate, sugar confertionery and other food products n.e.c. Manufacture of cocoa, chocolate, sugar confertionery and other food products n.e.c. Publishing Publishing

22. Textile Primary Industries Manufacture of textiles Manufacture of textiles Manufacture of other textiles Manufacture of other textiles Manufacture of knitted and crocheted fabrics and articles Manufacture of knitted and crocheted fabrics and articles Manufacture of wearing apperel, except fur apparel Manufacture of wearing apperel, except fur apparel Manufacture of basic chemicals, plastics in primary forms and of synthetic rubber Manufacture of basic chemicals, plastics in primary forms and of synthetic rubber Manufacture of cleaning materials, cosmetics and other chemicals and man-made fibres Manufacture of cleaning materials, cosmetics and other chemicals and man-made fibres Secondary Industries Agricultural and animal husbandry service activities, except veterinary activities Agricultural and animal husbandry service activities, except veterinary activities Manufacture of plastic products Manufacture of plastic products Manufacture of glass and glass products Manufacture of glass and glass products

23. Furniture Primary Industries Forestry, logging and related service activities Forestry, logging and related service activities Sawmilling and planing of wood Sawmilling and planing of wood Manufacture of wood and of products of wood and cork Manufacture of wood and of products of wood and cork Manufacture of furniture Manufacture of furniture Secondary Industries Manufacture of cocoa, chocolate, sugar confertionery and other food products n.e.c. Manufacture of cocoa, chocolate, sugar confertionery and other food products n.e.c. Manufacture of coke, refined petroleum produtcs Manufacture of coke, refined petroleum produtcs Manufacture of rubber products Manufacture of rubber products

24. Regional Specialisations İstanbul- İzmirStone-based industry ÇukurovaTextile Ankara and Kırıkkale Engineering Furniture Ankara RegionProduction and processing of field crops Stone-based industry KayseriFurniture GaziantepTextile KonyaEngineering Production and processing of field crops SamsunProduction and processing of field crops EskişehirEngineering Stone-based industry Packaged food and beverages

25. Figure 6.2 Diamond framework of competitive advantage Source: Adapted from Porter (1990), figure 3.1, p. 72.