Martin Srholec

Innovation and economic development

Innovation is often seen as carried out by highly educated labor in R&D intensive companies with strong ties to leading centers of excellence in the scientific world. Seen from this angle innovation is a typical “first world” activity. There is, however, another way to look at innovation that goes significantly beyond this high-tech picture. In this broader perspective, innovation—the attempt to try out new or improved products, processes, or ways to do things—is an aspect of most if not all economic activities. In this sense, Section 1 puts forward the idea that innovation may be as relevant in the developing part of the world as elsewhere. Section 2 discusses the existing theoretical and empirical literature on the subject. An important conclusion is that to be able to exploit technology to their own advantage, developing countries need to develop the necessary capabilities for doing so. But what are these capabilities and how can they be measured? Section 3 surveys attempts to identify and measure capabilities at the national level. However, the development of such capabilities, it is argued, depends in important ways on what firms do. Section 4, therefore, focuses on recent attempts to survey innovation activity in firms in developing countries and what can be learnt from that. Section 5 discusses the role of domestic versus foreign sources in fostering innovation in the developing part of the world. The final section summarizes the main lessons.

Diverging Pathways in Central and Eastern Europe

In this chapter we analyse the patterns of production regimes in a large sample of countries using the Varieties of Capitalism (VoC) approach. The main focus is on the post-socialist countries from Central and Eastern Europe and the former Soviet Union, but we also include advanced market economies from Western Europe, North America and Asia for comparative purposes. We begin in the first section by making several constructive comments that place the approach in the broader context of institutional economics. We then analyse some of the relevant patterns in the context of different modes of coordination, following the work of Hall and Gingerich (2004). This analysis shows that the post-socialist countries are spread across the spectrum, reflecting both historical backgrounds and their individual development strategies. The following section elaborates on the industrial relations systems in more detail. A final section contains some further comments and reflections on the VoC approach.

The Role of Innovation in Development

Innovation is often seen as carried out by highly educated labour in R&D intensive companies with strong ties to leading centers of excellence in the scientific world. Seen from this angle innovation is a typical “first world” activity. There is, however, another way to look at innovation that goes significantly beyond this high-tech picture. In this, broader perspective, innovation – the attempt to try out new or improved products, processes or ways to do things – is an aspect of most if not all economic activities. In this sense, innovation may be as relevant in the developing part of the world as elsewhere. Section two discusses the existing theoretical and empirical literature on the subject. An important conclusion is that to be able to exploit technology to their own advantage, developing countries need to develop the necessary capabilities for doing so. The third section of the paper, therefore, discusses ways to identify and measure capabilities at the national level, while section four focuses on recent attempts to survey innovation activity in firms. The final section summarizes the main lessons. JEL classification: O14, O19, O31, O33, O40

Innovation Systems, Technology and Development: Unpacking the Relationships

The idea that technology plays an important role in development has been around for a long time. Nearly a century ago Torstein Veblen used evidence from the German industrialization process to argue that technological catch up by industrial latecomers was indeed possible, and that several other countries such as for example Japan would be likely to exploit this opportunity (Veblen 1915). After the Second World War this optimistic scenario was taken over by the neoclassical strand in economics, which gradually came to dominate the discipline (Solow 1956, 1970). According to this way of thinking, technology should be seen as a freely available “public good”, facilitating development everywhere as long as markets are allowed to “do their job” properly.

Knowledge, Capabilities and the Poverty Trap: The Complex Interplay Between Technological, Social and Geographical Factors

This paper explores the possibility that technological capabilities, to lead to development, need to be accompanied by a broader set of “social capabilities”, reflecting not only the quality of governance but also the spread of values, beliefs and institutions that encourage members of society to actively contribute to the development process. To investigate this issue, a set of empirical indicators, reflecting the capabilities that have been emphazised in the literature as being important for development, was identified. We also take into account the possibility that these capabilities (and their impact) may be conditioned by historically given factors (related to, for example, geography, demography and history). The paper uses factor analysis to analyse the question of how these indicators interrelate and explores their relationship with economic development. We find that technological and social capabilities are indeed strongly related and, moreover, strongly correlated with economic development. The same does not apply for the second factor suggested by the analysis, which mainly reflects the character of countries’ political systems. Thus it is more important economically what countries do than how they decide on it. A strong negative relationship with development was found for the third factor, reflecting the combined effect of high fertility rates, low education and high frequency of serious disease. Arguably, this contributes to a “vicious circle” that makes it difficult for some very poor countries, especially in the tropics, to escape from poverty.

Knowledge Base Combinations and Innovation Performance in Swedish Regions

Abstract The literature on geography of innovation suggests that innovation outcomes depend on a diversity of knowledge inputs, which can be captured with the differentiated knowledge base approach. While knowledge bases are distinct theoretical categories, existing studies stress that innovation often involves combinations of analytical, synthetic, and symbolic knowledge. It remains unclear, though, which combinations are most conducive to innovation at the level of the firm and how this is influenced by the knowledge bases available in the region. This article fills this gap by reviewing the conceptual arguments on how and why certain firm and regional knowledge base combinations relate to firm innovativeness and by investigating these relationships econometrically. The knowledge base is captured using detailed occupational data derived from linked employer–employee data sets merged at the firm level with information from Community Innovation Surveys in Sweden. The results indicate that analytical knowledge outweighs the importance of synthetic and symbolic knowledge and that, however, firms benefit most from being located in a region with a balanced mix of all three knowledge bases.

Understanding the diversity of cooperation on innovation across countries: multilevel evidence from Europe

Much has been written about innovation cooperation, but little research has been done to explain the national differences thereof. Using macro and micro evidence from the fourth Community Innovation Survey, we econometrically investigate the extent to which national framework conditions account for the propensity of firms to cooperate on innovation at home and abroad. The results indicate strong differences across countries in the latter. Firms operating in countries with less developed research infrastructure are shown to be more likely to cooperate with foreign partners, supporting the thesis that in this context the foreign linkages tend to be diasporic. The size and openness of the economy matters too. But the characteristics of firms that explain cooperation are not found to differ much across country. The results furthermore draw attention to the limitations of the existing micro data sets on innovation cooperation.

Structural Changes in International Trade - Cause, Impact and Response

The character of the structural changes in international trade, and the possibility that these might impact countries differently, has been a matter of great concern for many observers from the 1950s onwards. The view that all sectors do not offer the same prospects for growth, and that the specialisation pattern of a country in international trade therefore matters for its economic performance, has also been widespread. This paper analyses the structural changes in international trade between 1965 and 1990, the impact of this on the OECD countries and the ability of these countries to adapt to these changes. It is shown that trade in commodities from industries characterised by high R&D outlays grew much faster than other trade. But also some goods from industries that do little R&D displayed high growth (for example clothing). In general, these changes were most favourable for the large and medium-sized countries of the OECD area (high income). Small countries, and low-income countries, benefited much less. There were striking differences across countries in the ability to adapt to these changes. The large rich countries (USA, Japan) and some of the low-income countries showed good adaptability, while many others failed. This holds, for instance, for all the small, high-income countries. It is shown that this to a large extent may be explained by the failure of these countries to carve out sustainable niches for themselves in electronics, the most fast-growing part of world trade during this period.

Mothers and Daughters: Heterogeneity of German Direct Investments in the Czech Republic

Much has been written on the distinction between vertical and horizontal foreign direct investment. However, most of the empirical literature relies on indirect and aggregated measures only. The aim of this paper is to help fill this gap by examining the differences between German affiliates in the Czech Republic and their mother companies in Germany on the basis of direct evidence on factor requirements. Using a cluster analysis on firm-level data from the unique ReLoc survey, we identify four main groups of firms that partition the sample by broad sectoral lines and by technological, educational and skill intensity of their operations within each of them. More detailed analysis of the clustering reveals that the vertical model dominates in manufacturing, while the horizontal model of investment prevails in the service sector.

Mapping the Geography of R&D: What Can We Learn for Regional Innovation Policy in the Czech Republic and Beyond?

Abstract Administrative regions do not necessarily correspond to areas that are homogenous in terms of innovation intensity. Although this has been recognized in the literature, quantitative evidence that explicitly considers this problem is rare. Using spatial exploratory analysis on detailed regional data derived from a census of R&D performers in the Czech Republic, we identify local spatial clusters of R&D activities and assess the extent of their (mis)match with administrative borders. Overall, the results support the arguments for regionalization of innovation policy. However, the existing policy units do not appear well suited for this purpose. On one hand, there is a need for policy coordination between multiple administrative regions. On the other hand, however, there are diverse patterns within them. Similar problems are likely to haunt the regionalization process in many other countries, which is alarming, as the regional accent of innovation policies becomes ever more vehement over time.