Innovation and innovation policies in developing countries

Transcript Innovation and innovation policies in developing countries

Industrial policy: history, theory and empirical evidence

Michele Di Maio

University of Naples Parthenope December 12, 2014 HDFS Master, University of Roma Tre

Outline

1. The importance of manufacturing for economic development 2. The return of Industrial Policy (IP) 3. What is IP?

4. Theoretical justification(s) for IP 5. Historical experiences 6. Empirical evidence (international trade) 7. A special case: innovation policy

Outline

1. The importance of manufacturing for economic development

2. The return of Industrial Policy (IP) 3. What is IP?

4. Theoretical justification(s) for IP 5. Historical experiences 6. Empirical evidence (trade) 7. A special case: innovation policy

The importance of manufacturing for economic development Two stylized facts: 1. Economic development requires structural change from low to high productivity activities 2. Virtually all cases of high, rapid and sustained economic growth in modern economic development have been associated with industrialization, particularly growth in manufacturing production

The importance of manufacturing for economic development The strategic role of manufacturing in the development process can be ascribed to a variety of factors. 1.

manufacturing has historically been the main source of innovation 2.

in modern economies strong (forward and backward) linkages and spill-over effects associated with manufacturing activities.

the share of manufactures in total household expenditure increases as per capita income rises while the share of agriculture 4.

decreases (Engel’s law). manufacturing has a higher potential for employment creation relative to agriculture and traditional services.

– diminishing returns to scale in agriculture (due to fixed factors such as land) implies that the opportunities for employment growth in the sector are limited. The manufacturing sectors has no this limitation and, as a country's population grows and urbanization takes place, can absorb labour displaced from agriculture

Outline

1. The importance of manufacturing for economic development

2. The return of Industrial Policy (IP)

3. What is IP?

4. Theoretical justification(s) for IP 5. Historical experiences 6. Empirical evidence (trade) – evidence on infant-industry protection – – cross-country evidence on tariffs, trade, and growth “soft” versus “hard” IP 7. A special case: innovation policy

The return of Industrial Policy

• • A prominent feature of developing countries economies (especially African ones) is the significant process of deindustrialization – Africa's gross domestic product (GDP) fell from 15 per cent in 1990 to 10 per cent in 2008. The most significant decline was observed in Western Africa, where it fell from 13 per cent to 5 per cent over the same period. As a reaction to this state of affair, there has been an increasing commitment of governments to support industrialization as part of a broader agenda to diversify the economy through industrial policy.

The return of Industrial Policy: examples

• • • • • South African government (2007) adopted the National Industrial Policy Framework (NIPF). Objetives: diversifying the production and export structure and promoting labour absorbing industrialization. Industrialization is a component also of recent national development programmes of Egypt, Ethiopia, Kenya, Namibia, Nigeria and Uganda 2001 - The New Partnership for Africa's Development (NEPAD) identified economic transformation through industrialization as a critical vehicle for growth and poverty reduction in the region 2008 - Adoption of Plan of Action for the Accelerated Industrial Development of Africa (AIDA) 2010 - ECOWAS adopted the West African Common Industrial Policy (WACIP).

– The objectives of WACIP are as follows: to diversify and broaden the region's industrial production by progressively raising the processing of export products by an average of 30% by 2030; to progressively increase the manufacturing industry's contribution to regional GDP to an average of over 20% in 2030, from its current average of 6%; to improve intra-community trade from the present 13% to 40% by 2030; to expand the volume of exports of manufactured goods from the current 0.1% to 1% by 2030.

The return of Industrial Policy

• • • • This policy change has been accompanied by an increasing agreement among scholars on the fact that - beside the creation of a competitive market environment - governments of developing countries should also play a proactive role in facilitating structural transformation and industrial upgrading While it is now clear that industrial policy (IP) is back in both the political and economic discourse, it is not all clear how to design an effective IP.

In fact, there are several factors that may make IP worse than the problems it aims to solve. The first step is to understand what is the meaning of IP

Outline

1. The importance of manufacturing for economic development 2. The return of Industrial Policy (IP)

3. What is IP?

4. Theoretical justification(s) for IP 5. Historical experiences 6. Empirical evidence (trade) 7. A special case: innovation policy

What is Industrial Policy? (1)

• • • • There are several different possible definitions for IP.

All refer to the role of government in influencing the economic structure.

Pack (2000) defines IP as: government actions designed to target specific sectors to increase their productivity and their relative importance within the manufacturing sector.

Harrison and Rodigues-Clare (2010): any government intervention which shifts incentives away from policy neutrality.

What is Industrial Policy? (2)

• • • In other definitions, IP has an even more ample set of objectives, usually to enhance productivity, competitiveness, and overall economic growth.

– IP comprises any government measure to promote or prevent structural change (Curzon Price , 1981) One important cause of structural change is international trade. This is why IP is sometimes referred to as the set of policies aiming at ’defy’ the country comparative advantage and to develop its ’latent’ comparative advantage (Amsden, 2001; Chang, 2002).

Some sources give IP even more ambitious objectives: – to promote growth trying to shape structural change in ways that are socially inclusive and environmentally sustainable (UNIDO, 2011)

What is Industrial Policy? (3)

• • • The more general the objectives, the larger the set of measures which can be considered as part of IP.

According to Cimoli et al (2009), IP includes: i) innovation and technology policies; ii) education and skill formation policies; iii) trade policies; iv) targeted industrial support measures; v) sectoral (competitiveness) policies; vi) competition regulation policies.

Somehow different is the approach of Rodrik (2007) who defines IP as a process involving a ’dialogue’ between the state and the private sector to generate information for identifying and removing the binding constraints to development

Industrial Policy: our definition

• • We define IP as the set of government measures - targeted at specific industries or firms - implemented with the objective to support the development and upgrading of industrial output (thus not limited to manufacturing sector). For this reason, IP naturally includes a large set of policies belonging to different domains of intervention, namely: – – – – – – innovation and technology policies education and skills formation policies trade policies targeted industry support measures competitiveness policies competition and anti-trust regulation

Outline

1. The importance of manufacturing for economic development 2. The return of Industrial Policy (IP) 3. What is IP?

4. Theoretical justification(s) for IP

5. Historical experiences 6. Empirical evidence (trade) 7. A special case: innovation policy

When IP does makes sense in theory

• The theoretical justification for IP is based on the fulfillment of three conditions: 1. some market failure is present (e.g., sector level externalities); 2. the firm/sector is potentially competitive in the international markets; 3. the discounted future benefits of intervention exceed the costs of the distortion.

When IP does makes sense in theory Baseline:

Under perfect competition, Government intervention is always bad !

When IP does makes sense in theory

The theoretical justification for IP is based on the fulfillment of three conditions: 1. some market failure is present (e.g., sector level externalities); 2. the firm/sector is potentially competitive in the international markets; 3. the discounted future benefits of intervention exceed the costs of the distortion.

When IP does makes sense in theory

The theoretical justification for IP is based on the fulfillment of three conditions:

1. some market failure is present (e.g., sector level externalities);

2. the firm/sector is potentially competitive in the international markets; 3. the discounted future benefits of intervention exceed the costs of the distortion.

Market failures

There are three main types of market failures. 1. the existence of a sector level positive (technology or demand) externality 2. informational externality related to the difference between the private and the social benefit in exploring the profitability of a new activity.

3. investment coordination failure: because of a lack of required investments in related actives—the private sector investment is sub-optimal.

When IP does makes sense in theory

The theoretical justification for IP is based on the fulfillment of three conditions: 1. some market failure is present (e.g., sector level externalities);

2. the firm/sector is potentially competitive in the international markets;

3. the discounted future benefits of intervention exceed the costs of the distortion.

When IP does makes sense in theory

3. the discounted future benefits of intervention exceed the costs of the

distortion.

When IP does not make sense in theory

Two main arguments against the use of IP in developing countries: 1. even in the presence of imperfect markets, there is no reason to suppose that the government has better access to information with respect to the market. Since government information is necessarily limited, good selectivity is impossible – This implies - for instance - that the “picking winners” strategy is deemed to fail 2. any government measure (e.g., investment support, tax exemptions, etc.) creates rents. Firms find it profitable to (legally or not) invest their resources to obtain them. This is a wasteful activity that also distorts allocation of resources because it makes competition between firms unfair.

Outline

1. The importance of manufacturing for economic development 2. The return of Industrial Policy (IP) 3. What is IP?

4. Theoretical justification(s) for IP

5. Historical experiences

6. Empirical evidence (trade) 7. A special case: innovation policy

Historical experiences

• • • We look at the historical experiences to understand the effects of IP Past successful experiences 1. England (1800); Germany (1880); USA (1900) 2. 1960s: NICs (South Korea, Taiwan, Singapore, Hong Kong) We focus on two different set of countries 1. African countries 2. BRICS (Brazil, Russia, India, China, South Africa)

Industrial Policy in Africa

Industrial policy in Africa

This section has two objectives: 1. To provide a survey of the literature on IP in Africa (historical and comparative perspective) 2. To suggest some policy recommendations based on the analysis of new approaches to industrialization

Outline

1. Industry in Africa: some stylized facts 2. IP in Africa: a very brief historical overview 3. The new world, the new rules and IP in Africa today 4. What are the main IP options for African countries ?

Industry in Africa: problems and perspectives

• • • • African Export – – nearly 75% are primary products the composition of African exports to other developing countries has shifted towards primary products .

Primary products – production is capital intensive often poorly linked to other sectors – prices are set at the world level and characterized by high volatility The increasing concentration of Africa’s production and exports on primary commodities casts some doubts on the potential for future growth in the region.

The type of product a country exports matters for long-term growth

Industry in Africa: problems and perspectives

• • • • The experience of other emerging countries (i.e. East Asia and Latin America countries) show that industrialization has been the engine of growth IP is needed to foster industrialization in Africa.

The failure of past industrialization strategies in Africa calls for a renewed developmental IP Are there still lessons to be learned from the past?

IP in Africa: historical overview

The Developmental State in Africa – since the 1950s African governments implemented a number of measures to promote industrialization.

– this process which was characterized by an Import Substitution Industrialization (ISI) strategy to development.

– governments • • offered protection to domestic firms used a range of policy measures to implement protectionist trade policies (tariff and nontariff barriers, such as quotas and licenses • nationalised foreign firms and made large public investment

IP in Africa: historical overview

• • Why did the Developmental State (DS) performance has been so different in NICs and in Africa?

Differences in initial conditions and in the characteristics of the policies adopted – – initial conditions (quality of education and technological knowledge) governments • offered protection to domestic firms – (little discrimination between activities, no time limit and no requirements of international competitiveness) • used a range of policy measures to implement protectionist trade policies (tariff and nontariff barriers, such as quotas and licenses – (no control on the activity of protected firms) • nationalised foreign firms and made large public investment – (inefficient management of public firms) – role of innovation and technological change

IP in Africa: historical overview

• • • • • In mid 1980s, the economic situation of most of African countries was very difficult.

Adoption of Structural Adjustment Programs (SAPs) [FMI, WB].

The DS apparatus was eliminated and the ISI strategy abandoned SAPs successful in: – – – liberalizing trade and the financial-sector, favouring the privatization of public enterprises inducing currency devaluations SAPs not successful in favouring industrialization: – the industrial performance has been disappointing. Many African countries suffered de-industrialization process in the 1980s and 1990s

IP in Africa: historical overview

Assessment of the Structural Adjustment Programmes (SAPs) – SAPs did not promote significant improvements in technological capability, skill levels, productivity and export quality and greater value-added in the agro-industry sector (these were the expected responses from the reforms).

– The weak African industrial structure is, at least in part a consequence of these interventions.

– Several industrial sectors have still to recover from the SAPs period and, given the new international context, this task seems to be increasingly difficult

The new world, the new rules and industrial policy in Africa today

• The world economy is rapidly changing • New rules (WTO, REC, etc.) • New actors (China, India, etc.) • New products and new technological paradigms • Opportunities and challenges are different

The new world, the new rules and industrial policy in Africa today

• • • Industrialisation figures today among the highest policy priorities at the continental level: several initiatives, plans of action, development projects and call to develop industrialization in Africa.

African governments are still largely engaged in industrial policy.

A number of different industrial policy instruments are employed in African countries (next slide)

Industrial Policy in Africa today

What are the new IP options for African countries?

New approaches to industrial policy – industrial clusters – upgrading along the agricultural value chain

Industry in Africa: Industrial clusters

• • • • An emerging element in the African economic landscape is the industrial cluster.

Clusters are believed to play a significant role in the promotion and development of SMEs The benefits of clustering are: 1. making market access easier 2. create labor pooling 3. facilitate technological spillovers 4. create an environment conductive to joint actions The benefits of clusters would be particularly valuable to African SMEs given the difficult economic environment in which they operate.

Industrial cluster: which policies?

• • • Policies should be designed to create an environment conducive to the conditions under which a cluster can emerge.

The cluster approach works well when (at least) three actors take part into the initiative: the university, the government and the private sector.

While differentiated by cluster characteristics, IP should: – encourage acquisition, adaptation and diffusion of technology (science parks) – strengthen the education-business sector link – strengthen and upgrade skill training – provide physical infrastructure

IP to upgrade along the agricultural value chain

• • • • Agriculture is crucial for African countries’ growth Not all agricultural sectors provide the same opportunities for export-led growth.

Over the past quarter-century, there has been a significant transformation of global trade: away from traditional tropical products and towards non-traditional agricultural exports There are a number of government projects and plans of action to support the agriculture sector in Africa.

• NEPAD’s Comprehensive Africa Agriculture Development Programme (CAADP) • Alliance for a Green Revolution in Africa (AGRA) • UN, World Bank, and IMF High Level Task Force on the Global Food Crisis

IP to upgrade along the agricultural value chain

• • The new content: increasing importance of GVCs in agricultural trade – the role of standards – global buyers become more demanding Governments should: – provide physical and informational infrastructure to support coordination between enterprises and traders – develop efficient marketing organizations – support the development of local consultancy and certification companies for standards – – collaboration between export enterprises provide business-oriented services to farmers

Some remarks

• African countries need to strengthen the processing activity to be able to compete at the world level and to induce a structural change of their economies • Historically, industrialization and structural change has been possible only through government intervention and IP • The world and the rules of the game have changed but there is still room for government intervention to favor industrialization • New tools and strategies are available: cluster approach and policies to up-grading along the agricultural value chains

Industrial policy in BRICS

• • •

IP in BRICS

We explore the history and the evolution of IP in BRICS (Brazil, Russia, India, China, South Africa). They are the new success stories We try to answer to a number of difficult questions such as: 1.

What has been the role of IP in the BRICS countries’ development process? Which are the common elements and the main differences (if any) between the different IP models? Are the IP models converging towards a similar type of IP? Are there lessons that can be learnt from the BRICS industrialization experiences?

Brazil

• • • • The history of IP in Brazil (in one slide) ISI strategy (since 1940s) 1982 crisis (partially related to the ISI strategy) Washington Consensus reform Return of IP (since Lula Presidency, 2003)

Main characteristics of the current approach to IP

• • • • Large involvement of the Government in supporting manufacturing Creation of new agencies and institutions to manage IP Attempt to improve the public-private dialogue (and cooperation with university) Emphasis on technology and innovation policies

Lessons from the Brazilian experience

• • IP may require a long-term perspective – especially if it targets high-tech sectors This also implies that IP needs to adapt to the changing internal and external conditions: a

given objective could be achieved through different specific measures

China

• • • The history of IP in China in one slide Industrialization through central economic planning (since the 1950s) 1978 Economic reforms Since mid 80s, adoption of an IP characterized by an evolving (creative) combination of different measures – State highly interventionist – Reduction and modification of the role of SOEs – Attraction of FDI (technology acquisition)

Lessons from the Chinese experience

• One of the reasons for China‘s economic success has been the ability to choose and adapt IP to the numerous changes that took place in its domestic development strategy and international conditions.

This suggests that flexibility in the type and use of policies may be crucial to the effectiveness of the industrialization strategy.

Lessons from the Chinese experience

• The Chinese case is characterized by unique characteristics and several peculiarities. – Example. issues related to the regulation of co existence of private firms and SOEs; the possibility to attract FDI because of the size of the domestic market, etc.

This implies that extreme care is needed when it

considered as a model to be replicated.

India

• • • ISI strategy (since independence) – strict regulation of industry – five years plans – State highly interventionist 1991 Structural Reforms (drastic trade liberalization, deregulation of economic activity) Since the 2000s, pragmatic approach to IP

Lessons from the Indian experience

1. The recent high GDP growth has been achieved through not-orthodox policies.

– This is not to deny the positive effect of the reforms. Though one should recall that the liberalization process has taken place at a controlled pace and that even after the reform several industrial policies remained in place.

Lessons from the Indian experience

2. The Indian experience also tells us what IP should avoid: 1) controlling prices; 2) controlling quantity; 3) imposing the geographical location of economic activities.

3. The need and advantage (in terms of implementation ad support) of IP enjoying political and social acceptance.

Russia

• • • IP since the end of URSS Drastic economic reforms (liberalization, privatization and de-regulation) Policies to attract FDI: various phases (increasingly more welcoming but with some halt) Attempts to create a dialogue between the Government and the private secto

Lessons from the Russian expericence

• • IP may take very different forms depending on the characteristics of the economy (e.g. reducing uncertainty in the economy) Effective IP needs a continuous dialogue between the Government and the private sector: this requires the building of mutual trust, which is something very delicate and requires long time

South Africa

• • • The history of IP in one slide Two peculiarities – apartheid – the co-existence of the mineral-energy complex and manufacturing (conflict between the two) ISI strategy (since the 1940s) New industrial policy (since the democratic transition)

Lessons from the South African experience

• • The activities and successes of the DTI (Department of Trade and Industry) and of the IDC (Industrial Development Corporation) clearly show the importance of developing government agencies’ capabilities to make IP effective The way in which the IP has been presented to the public and conducted created a large support for that. Given the risk associated with IP (possible mistakes and failures) and the long-term horizon usually associated with it, it is crucial that there is a large support for IP.

Some remarks

• • • • BRICS are not much different as for their (non orthodox) approach to IP BRICS countries are very different as for the specific measured of their IP External elements (i.e. WTO) will probably contribute to force convergence in general IP design Country experimentation will (probably) continue

Historical evidence: some remarks

• • • Necessary conditions (sector-level externalities or sectoral a latent comparative advantage) not easy to identify ex ante There is no evidence that sectors which have been protected historically are those with such a latent comparative advantage and sector-level externalities. Protection to declining not emerging sectors: an inherent bias against promoting sectors with a latent comparative advantage.

Empirical evidence

How to resolve the debate? Empirical evidence

• • • • Evidence on infant industry protection It is the best known and most maligned type of IP All countries in any time have used it: from England in the XVIII century to present day US (Boeing), Europe (Airbus), and China (cars). Look at costs and benefits of intervention. – Mill test : protection allows sector to exploit learning effects and move down marginal cost curve – Bastable test: aggregate benefits outweigh costs to consumers

Sectoral studies

Evidence is mixed: getting interventions “right” is difficult

1. Industry-specific case studies

– Yes, welfare increased due to intervention • Aircraft in Europe • Steel rail industry in the USA • Production of electricity from wind power – No, welfare fell as a consequence of intervention • Semi-conductors in Japan • Tinplate in the United States • Computers in Brazil

2. Cross-industry studies

– Removal of protection often generates within-firm and within-industry productivity gains – But studies typically fail to measure the impact of policies, focusing instead on outcomes (like trade shares).

What to conclude from this mixed evidence?

• • • We know externalities exist but exploiting them is not easy If agglomeration economies are important, then IP in small domestic markets is likely to fail This means that: – Intervention should be oriented towards • sectors with a latent comparative advantage • sectors with large externalities or coordination failures

Policy Implications for IP and Trade

• • • Who is doing IP matters (need strong institutions to prevent capture) What is being promoted makes a big difference: – sectors with strong externalities (learning by doing; spillovers to other sectors) – sectors with a “latent” comparative advantage When to promote: emerging not declining sectors Warning: Agglomeration may be necessary but not sufficient for increased productivity. Subsidizing the software sector may not generate a Silicon Valley

FDI attraction as IP

• • • All countries promote incoming foreign investment, but this is rarely referred to as IP.

In 2010, 103 countries offered tax concessions to foreign companies setting up facilities within their borders.

Countries frequently offer also other benefits, such as free or subsidized infrastructure.

FDI attraction as IP

• • • • Multinationals should be attracted to produce key inputs or to bring specific knowledge needed by clusters with the ability to absorb them. Without host-country policies to develop local capabilities, MNC-led exports likely to remain technologically stagnant, leaving developing countries unable to progress beyond the assembly of imported components.

Countries should target specific sectors more than others, moving away from policy neutrality: promote FDI selecitvely These are: telecommunications, vehicles and transport equipment, computers). The sectors where we expect there to be Marshallian externalities.

Suggestions for effective IP

• • • Don’t expect governments to identify coordination failures, but invite sector and cluster organizations to come forward If such organizations are weak, provide support to sectors that want to initiate or improve their organizations Public-private collaboration is crucial

Outline

1. The importance of manufacturing for economic development 2. The return of Industrial Policy (IP) 3. What is IP?

7. A special case: innovation policy

Innovation and innovation policy: what are they and why they are important

Outline

1. Innovation: definition(s), actors, determinants 2. Why innovation is important 3. Measurement of innovation 4. Innovation policy

Outline

1. Innovation: definition(s), actors, determinants

2. Why innovation is important 3. Measurement of innovation 4. Innovation policy

Definition of Innovation

• According to OECD, an innovation is the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization or (even) external relations (OECD, 2005). • Innovation also includes social innovation, i.e. innovations that seek new answers to social problems.

The actors of innovation

• This definition clearly suggests that there are several economic actors engaged in innovation. • Among these, the most important are 1) private and public firms, 2) universities and public research institutes and 3) the government. • Universities and public research institutes play a crucial role by providing education, training, creation and diffusion of knowledge, • Government’s role is to support private initiatives through measures designed to favor innovation.

The main characteristics of innovation

• Innovation may be characterized by several dimensions including: 1. the type of innovation (product/ process innovation), 2. the degree of novelty of the innovation (incremental/radical innovation), 3. the source of innovation (technological/non technological innovation).

(1) The type of innovation (product/ process innovation)

• Product innovation is the introduction of a good or service that is new or has significantly improved characteristics or intended uses. • Process innovation refers to the implementation of a new or significantly improved production or delivery method. • Type of innovation firms perform varies significantly across countries, across firm size and economic sectors.

• Firms often adopt mixed model of innovation.

(2) The degree of novelty of the innovation (incremental/radical innovation)

• A radical innovation is one that has a significant impact on a market and on the economic activity of firms in that market. • An incremental innovation concerns an existing product, service, process, organization or method whose performance is significantly enhanced or improved. • The dominant form of innovation is the incremental one. – Incremental innovation is also the more relevant form in the case of developing countries.

(3) The source of innovation (technological/non-technological innovation).

• Technological innovations are usually associated with product and process innovation.

• Non-technological innovations are generally associated with organizational and marketing innovations. • In practice, technological and non-technological innovations are in fact highly interconnected.

Other determinants of innovation

• The nature of innovation greatly differs – – – from sector to sector across countries time periods

Sectoral characteristics of innovation

• The nature of innovation depends on the characteristics of the sector. – Some sectors are characterized by rapid change and radical innovations, others by smaller, incremental changes. – The source of innovation may significantly vary between sectors. • •

high-technology sectors: R&D plays a central role in innovation activities, while other sectors rely to a greater degree on the adoption of existing knowledge and technology. Low-and medium-technology sectors: often characterized by incremental innovation and by foreign technology adoption.

Social Innovation

• No agreed definition of social innovation.

• • OECD (2010) defines social innovation as a tool to identify and respond to social challenges when the market and the public sector have failed to do so. – a form of economic innovation satisfying new needs not provided for by the market (even if markets may also intervene).

• defined more by the nature and objectives of the innovation rather than by the characteristics of the changes themselves. The non-profit sector plays a special role in fostering and implementing social innovation

Outline

1. Innovation: definition(s), actors, determinants

2. Why innovation is important

3. Measurement of innovation 4. Innovation policy

Why innovation is important

• Innovation plays a key role in economic development by contributing to growth, jobs creation and helping address social and environmental challenges (OECD, 2005). • Innovation leads to improved competitiveness and is a major explanation of why growth rates at the firm, regional and national level differ

Why innovation is important for developing countries

• Innovation is important for developed countries • Sometimes still questioned for developing countries. • Innovation is often understood only as high technology. • Innovation takes place in all sectors, including services, agriculture and mining (OECD, 2010). • Different types of innovation play different roles at various developmental stages. – – in earlier stages, incremental innovation is the most relevant form of innovation as it is associated with the adoption of foreign technology. at later stages, high-technology and R&D-based innovation matter more.

Three stages of technology acquisition

• There are three main stages of technology acquisition within a developing economy: – first stage: the economy acquires mature foreign technologies (assembly operations); – second stage: consolidation of technology (duplicative imitation followed by, creative imitation; – final stage: domestic generation of new technologies.

Stages of economic development and characteristics of innovation Country category Developing countries and emerging and countries Mainly emerging countries but also developing ones Mainly emerging countries Objective of innovation

Improve productivity and process technology Favour the generation of inclusive innovation to improve welfare and access to business opportunities.

Build up innovation capacities to reach the world technological frontier

Type/source of innovation

Incremental innovation based on adoption of foreign innovations and technologies. Innovation needs to respond to specific “local” conditions for outcomes.

Incremental innovation based on combination of foreign technology and/or local, traditional knowledge. Incremental and radical innovation capacity to compete with leading world innovators.

Build-up niche competencies Incremental innovations based on applying foreign innovations and technologies strategically to support industrial development.

Climb the value ladder in global value chains Incremental and radical innovation capacity to differentiate contributions

Main agents involved

Universities and research institutes, private businesses, especially those with exposure to foreign markets NGOs, small firms, public and private associations engaged in disseminating knowledge via networks Private firms, Universities and research institutes, public institutions Public institutions to address co-ordination challenges, private sector initiative including foreign companies Private sectors with support from public agents, intermediaries, diasporas can play a central role, large firms can be important.

      

Evidence/example

  New plant varieties for agriculture New methods for mineral extraction (Chilean copper industry) India (nano cars; grassroots innovation) Mobile banking services South Korea in the 1990s.

Colombian and Ecuadorian flower industry Malaysia’s palm oil sector Automotive industries in Malaysia and Thailand India’s software industry Keep competitiveness in frontier industries Innovation is identical to developed countries exposed to developments in the global market.

Private sector in interaction with public research institutions and universities, role of large firms  Brazilian company Embraer

Outline

1. Innovation: definition(s), actors, determinants 2. Why innovation is important

3. Measurement of innovation

4. Innovation policy

The measurement of innovation

Data on innovation

• • • Innovation is a complex phenomenon Its measurement is difficult: data and indicators Several data can be used to measure innovation. 1) firm level data; 2) industry level data; 3) household-level data; 4) labour force survey; 5) R&D statistics; 6) innovation data; 7) patent data; 8) IPR data (trademarks, design rights and utility models); 9) scientific and technological output (citations, articles, etc.).

Data collection: innovation survey

• Innovation survey: a powerful and important instrument to increase knowledge about why and how innovation happens in firms • Innovation surveys collect information about: – – – – – innovation strategies, reasons for investing in innovation, how firm combine different types of innovation, quantitative data on sales from product innovations spending on a range of assets beyond R&D

The measurement of innovation

• All these data can be used and combined to construct quantitative indicators of innovation activities.

• Examples of innovation indicators are the level and rate of growth of: – – – – – – – R&D expenditure (as % of GDP); number of researcher employed in R&D activities (country level); number of total patents (country level); school enrollment in tertiary education; number of articles in scientific and technical journals; high-tech export (as % of manufacturing export); ICT expenditure (as % of GDP).

The measurement of innovation

• Different types of innovations need different type of indicators. – indicators to measure the degree of product innovation are different from the ones used to measures the rate of process innovation. • IMPORTANT: traditional and most commonly used measures of innovation may not be able to capture the full richness of innovation activities in developing countries.

The measurement of innovation in developing countries

• Commonly used measures of innovation may not be able to capture the full richness of innovation activities in the Pacific region. • Innovation creation and knowledge diffusion may be have significantly different characteristics from those found elsewhere.

• A different approach to the measurement of these activities needed. • To improve the understanding of the specific innovation process taking place in the local economies, we could use  semi-structured interviews,  ad-hoc questionnaires  focus-groups

Outline

1. Innovation: definition(s), actors, determinants 2. Why innovation is important 3. Measurement of innovation

4. Innovation policy