Competitiveness and National Innovation Systems

Dr. Lisa De Propris Birmingham Business School Institute for Economic Development Policy

Content

 Link between competitiveness and innovation  Measures and indexes  Cross-country rankings  National innovation system  Policies

Definition EU “

Ability of the economy to provide its population with high and rising standard of living and high rates of employment on a sustainable basis

.” European Commission, 2002:2 Knowledge + Innovation Productivity Competitiveness “

knowledge, innovation and entrepreneurship as key factors affecting industrial competitiveness

” EC, Competitiveness 2003

Definition OECD

Competitiveness is the degree to which a country can “

under free and fair market conditions, produce goods and services which meet the test of international markets , while simultaneously maintaining and expanding real incomes people in the long run

”

of its

(OECD, Technology and the Economy: The Key Relationship, 1992)

Definition WEF “

competitiveness is defined as that collection of factors , policies and institutions which determine the level of productivity of a country and that, therefore, determine the level of prosperity that can be attained by an economy

” (WEF, 2005:xiii)

Definitions “

true competitiveness is measured by productivity

”.

(DTI-UK, 2003:7)

“national competitiveness is the capacity to increase the real income of all Americans by producing high-value products and services meet the test of world markets ” that

(Council on Competitiveness-US, 2001)

Absolute, comparative & competitive advantages

 Absolute advantages : specialisation in the production of goods one country can produce more efficiently that any other  Comparative advantages : specialisation in the production of goods for which a country has the greatest relative advantage  Competitive advantages : (Porter’s diamond), cost advantage and differentiation advantages

Measures of competitiveness

 Trade = real exchange rate = exports  Productivity (labour, capital total factor)  GDP per capita- income  Composite indexes of e.g. innovation, human capital

World Economic Forum The Global Competitive Report 2005-06

Growth Competitiveness IndexMacro-economy Public institutions Tech & Innovation Policies Regulatory framework Global Competitiveness Index 1.

2.

3.

4.

5.

Institutions Infrastructure Macro-economy Health and primary education Higher education and training 6.

7.

8.

9.

Market efficiency Technology readiness Business environment Innovation

Sweden Finland Germany Denmark France Belgium Austria United Kingdom Netherlands Luxembourg Slovenia Czech Rep.

Ireland Italy Hungary Spain Portugal Estonia Lithuania Slovakia Polonia Greece Bulgaria Latvia Romania Cyprus EU15 0 0.5

Gross Domestic Expenditure on R&D as % of GDP, 2001

1 1.5

2 2.5

GERD as a percentage of GDP 3 3.5

4 4.5

UNIDO, Industrial Development Report 2002-03

UNIDO, Industrial Development Report 2002-03

National Innovation Systems

“ set of interrelated agents, institutions and practices that constitute, perform and participate in relevant ways in the process of technological innovation” Firms do not innovate in isolation A country’s technology and innovation capability determines its competitiveness Local-regional-national systems of innovation are connected NIS are not closed system

National Innovation Systems

National

coordination policy/instruments, service provision, funding, setting up the legal framework

Innovation

incremental/radical innovations; new to firms/new to markets

System

 innovation is a process involving firms and institutions/organisation  Linkages (cooperation, production exchanges)  Knowledge flows

Measures:

formal and informal cooperation over R&D, stock of research institutions, channels of dissemination and technology transfer, R&D expenditure, R&D performance, human capital

National Innovation Policy

     Link universities/public labs and businesses especially for science-based industries Encouraging cooperation over innovation Finance (venture capital, risk-taking banks) Military spending in R&D and procurement National programme in high tech sectors HOWEVER, – Picking sectors  – winners Duplication of efforts – Competition for resources (EU-wide science and research programme)

 

Finland

Top Growth Competitiveness Index ranking 2005 Is it only for Nokia? NO Nokia grew in a innovative environment  Finnish innovation system INSTITUTIONAL FRAMEWORK  21 universities   16 knowledge centre (EU sponsored) Tech Development Centre   Tech Research Centre of F. National cluster programmes coordinated across 5 ministries FUNDING  Finnish national fund for R&D (sponsors regional tech centres and arranges venture capital funds)  Regional development fund

NETWORKING  Across national agencies  Across national and regional agencies  Between agencies and businesses (including start-up firms) There exists a global communications technology industry  Trans-national innovation system (linkages, cooperations, sub-contracting, in outwards FDI

Finnish institutional framework

Reading List

M. Balzat and H. Hanusch (2004) Recent Trends in the Research on National Innovation Systems, Journal of Evolutionary Economics, Vol. 14.

EC (2005) EU Sectorial Competitiveness, Luxemburg, Official Publication of the European Communities.

EC (2003) Competitiveness: Internal market, industry and research, (document 9039/03) http://ue.eu.int

EC (2004) European Competitiveness Report 2004, Luxemburg, Official Publication of the European Communities. R.R. Nelson (1993) National innovation systems, OUP, Oxford.

Interamerican Development Bank (2001) The Innovation Systems of Latin America and the Caribbean, Working paper #460 Oinas P. (2005) “

Finland: a Success Story

?” European Planning Studies, 13/8 Porter M.E., K. Schwab and A. Lopez-Claros (2005) The Global Competitiveness Report 2005 05, World Economic Forum www.weforum.org

Porter M. (1990) The competitive advantage of nations, London, Macmillan.

Porter M. (1985) Competitive Advantage, London, Free Press.

Porter M.E. and H.M. Ketels (2003) UK Competitiveness: Moving to the Next Stage, DTI Economic Paper No. 3, Department of Trade and Industry World Bank, 2002, Building Competitive Firms: Incentives and Capabilities ( www.worldbank.org

) World Economic Forum (2002) The Latin American Competitiveness Report 2001-02, Oxford University Press