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Q1: Is Innovstion an Engine of Growth? (Kusakabe 2005) :1
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InputDate: 7/29/2006

Reference: Kusakabe, Motoo. 2005. ICT and National Innovation System: Is ICT Engine of Growth? Presentation at International Workshop on Workforce Development For Knowledge Economy, 7-13 September 2005, Seoul, Korea
A: Innovation was considered as the major driver for the economic growth since Schumpeter wrote the seminal work on ?gCapitalism, Socialism and Democracy?h (1942). Innovation again became a central focus when neo-classical growth theory and subsequent growth accounting works identified ?gtechnological progress?h as the major source of the economic growth. Innovation has attracted broader interests of the non-economists since U.S. economy revived through Silicon Valley model and new-economy based on innovation and entrepreneurship.
Broader definition of Innovation; National Innovation System
Innovation in the narrow definition is the activities to create a new scientific knowledge, products, process or marketing and other new organizational solutions. It may use a formal R&D activities or more informal on-the-job learning process for producing new concepts. The recent emphasis is more broad definition of the innovation as a total process to create a new knowledge to develop prototype, mass production and marketing the product to recover the profit. In that definition, innovation should be supported by broad social, cultural and economic system, called ?gNational Innovation System?h (Nelson 1996).

Product innovation and process innovation
Innovation can be relating to advanced new technologies, such as ICT and bio-tech, but also relating to traditional technologies, such as automobile industry. Toyota?fs just-in-time system could be regarded as the process innovation applied for traditional technologies. ICT is also relating to matured technologies such as PC assembly or manufacturing PC peripherals.
Does innovation increase its impact recently?
It is not surprising that the simple simultaneous correlation between innovation-related indicators and growth are not so strong or even negative, as such knowledge-based economic growth is rather a recent phenomena. Main questions to be addressed in this analysis is whether such innovation-related indicators had significant impact in recent years and which income group has such significant impact?

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Q2: Do R&D and patent related statistics correlate with growth? :1.1
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InputDate: 1/27/2007

Reference: Fagerberg, Jan. 1994. ?gTechnology and International Differences in Growth Rates?h. Journal of Economic Literature Vol. XXXII (September 1994), pp. 1147-1175
A: The basic assumption of the technology-gap approach is that gaps in productivity levels across countries to a large extent reflect technological differences. Hence, one should expect productivity, measured, for instance, by GDP per capita, to be correlated with measures of national technological activities, such as R&D and patent statistics suitably deflated by some measure of country size.
Pavitt and Luc Soete (1982) found R&D correlate with growth in OECD countries
Pavitt and Luc Soete (1982) tested this hypothesis on a sample of 14-15 OECD countries for selected years 1890-1977. The results were supportive, in particular for the post World War II period. Fagerberg (1988a), confirming this evidence for a larger sample of developed and newly industrializing countries, found that the importance of indigenous technological capabilities increases as a country moves closer towards the technological frontier.

Fagerberg (1988a)indicate R&D is necessary condition for successful imitation
The findings also indicate that a certain level of R&D is a necessary condition for successful imitation (while patenting activity is not)." It has further been shown (Fagerberg 1987) that the tendency towards convergence across countries in productivity levels was paralleled by a similar tendency for levels of R&D and patenting activity. As with productivity, the tendency towards convergence in national levels of technological activity was shown to slow down somewhat after 1973.
Immitation and innovation are both important for growth
Fagerberg (1987, 1988a, 1991) argues that a weakness of much work in this area is that the impact of indigenous technological activities in countries other than the frontier country (the U.S.) is ignored. Most industrialized countries, it is argued, contribute to the advance of the technological frontier, although not to the same extent.

Furthermore, in follower countries imitation and innovation will often be combined: indeed a successful imitation strategy more often than not contains an element of innovation. He has suggested a model where both catchup (imitation) and innovation are assumed to be conducive to economic growth. The tested model included three variables: the scope for exploitation of foreign-produced knowledge (proxied by GDP per capita), growth in national innovative activity (proxied by growth in patents), and other efforts to exploit available technology, wherever created (proxied by investments). All three variables contributed significantly to the explanation of the observed differences in growth in a sample of developed and newly industrializing countries. It was concluded that to catch up with the developed countries, ... semi-industrialized countries cannot rely only on a combination of technology imports and in vestments, but have to increase their national technological activities as well. (Fagerberg 1988a, p. 451)

Reference:
PAVITT, KEITH AND SOETE, LUC G. "International Differences in Economic Growth and the International Location of Innovation," in Emerging technologies: Consequences for economic growth, structural change, and employment. Ed.: HERBERT GIERSCH. Tubingen: J.C.B. Mohr (Paul Siebeck), 1982, pp. 105-33.

FAGERBERC, JAN. ."Why Growth Rates Differ," in Technical change and economic theory. Eds.: GIOVANNI Dosl ET AL. London: Pinter Pub., 1988a, pp. 432-57.

FAGERBERC, JAN. "A Technology Gap Approach to Why Growth Rates Differ," Research Policy, August 1987, 16(2-4), pp. 87-99

FAGERBERC, JAN. "Innovation, Catching Up and Growth," in Technology and productivity: The challenge for economic policy. Paris: OECD, 1991, pp. 3746.

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Q3: What is the appropriate technology choice? :2
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InputDate: 7/29/2006

Reference: Deraniyanagala, Sonali. 2006. Analysis of Technology and Development. edt. by Jomo KS and Fine. The New Development Economics, Zed Books, London
A: Technology issues were first explicitly introduced into the development literature in the 1970s, with attention focusing on the question of appropriate technology choice. The aim of this 'choice of technique' literature was to examine the factor intensities of alternative techniques of production used in developing countries.
Developing countries' technology choice is often not generating employment
Empirical studies typically showed a range of technology choices coexisting in specific sectors, with these techniques varying significantly in terms of their factor intensity (Stewart 1977). The dependence of developing countries on technology imports was shown to result in the use of 'inappropriate' (that is, capital-intensive) technologies. Many studies also showed the coexistence of appropriate or labour-intensive technologies, generally in the more traditional industrial sub-sectors (for example, handlooms). A central conclusion of this literature was the technology choice in developing countries was often not compatible with an important policy objective ?Eemployment generation.

Several features of this 'choice of technique' literature are noteworthy for our analysis.
Firstly, the notion of technological dependence is central to these studies, with developing countries seen as highly dependent on foreign technology.
Secondly, it is assumed that foreign technologies are used in developing countries without any adaptation or modification. In this sense, technologies are essentially seen as well-defined and finite blueprints.
Thirdly, while the existence of some indigenous technologies was observed in several studies, little attention was paid to the processes by which these technologies themselves had been developed.

Static view of the technology
Overall, therefore, this 'choice of technique' literature conceptualised technology in developing countries as being fairly static and unchanging. This conceptualisation was challenged in later studies of technology and development, discussed as evolutionary theories.

Reference:
Stewert, Frances. 1977. Technology and Underdevelopment. (Boulder: West View).

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Q4: What are the 'evolutionary' theories of technology? (Deraniyanagala 2006) :3
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InputDate: 7/28/2006

Reference: Deraniyanagala, Sonali. 2006. Analysis of Technology and Development. edt. by Jomo KS and Fine. The New Development Economics, Zed Books, London
A: Some of the most important theoretical contribution to the analysis of technology in the recent years has come from "evolutionary" theories of technology and growth (Nelson and Winter 1982). These theories model economic growth as having its origins in technological decisions and actions undertaken at the micro level. They also highlight several characteristics of technology and make a significant positive contribution to the economic analysis of the way knowledge is produced, diffused and economically exploited.
Technology is tacit and requires absorptive capacity to use
Evolutionary theory defines technology as knowledge, and questions the notion that technological knowledge is well-defined and available in blueprint form. In contrast to neoclassical theory, knowledge is seen as "fuzzy" and tacit, in the sense that it cannot be easily transmitted or communicated. For this reason, the innovative actions of economic agents are seen as being highly dependent on capabilities and skills necessary to absorb technological knowledge. It also means that a given technology will diffuse among potential users (for example, manufacturing forms) in a varied manner, depending on the absorptive capacity of each individual user.

Supply side capabilities is more important
The emphasis of evolutionary theory on supply-side capabilities has been very relevant to the analysis of technology in developing countries, a point to which we return below. These theories posit "learning", which determines the acquisition of capabilities, to be highly specific to individual agents such as manufacturing firms. Firms are seen as having "learning routines" that are cumulative, in the sense that learning in one period impacts on learning in the next period. These learning routines essentially determine the pace and pattern of technological change at the firm level.
National innovation system (NIS)
Writers within the evolutionary tradition have also developed the idea of "national innovation system"(NIS), a concept that has gaind intellectual and practical coherence over the past two decades or so. Analysis of technological and industrial dynamism in both developed and developing countries showed these countries to have well-functioning national innovation systems. As NIS has been defined as a network of public and private sector institutions which act to initiate, modify and diffuse new technologies (Freeman 1994), or, alternatively, as a set of institutions whose interactions determine the innovative performance of national firms (Nelson 1993). The NIS approach, therefore, reflects the proposition that innovation is not simply a response to various inducements but is the outcome of a variety of economic, social and institutional phenomena. In this sense, innovation is viewed as intrinsically linked to macroeconomic and social policies. The functions of an NIS include the creation of new knowledge, guiding the search for existing knowledge, supplying resources such as capital and skills, facilitating the creation of positive externalities, and facilitating the formation of markets. (Lundvall 2000). Important actors within an NIS include the government, scientific and research institutions, universities, training centres and private firms. Again, the NIS concept is at odds with the neoliberal approach in that a key role for the government in promoting technology investment is emphasized.

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Q5: What are the key propositions of the new 'evolutionary' theory of technological change? :3.1
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InputDate: 7/29/2006

Reference: Deraniyanagala, Sonali. 2006. Analysis of Technology and Development. edt. by Jomo KS and Fine. The New Development Economics, Zed Books, London
A: ?E
Significant technological change occurs below the global innovation frontier and developing countries actively undertake such technological change.
This new literature has questioned the notion that technological change in developing countries only involves the purchase of foreign technologies. Focusing largely on manufacturing, it has shown technological change in developing countries to be varied and, sometimes, extensive. While acknowledging the fact that developing countries rarely innovative at the global scientific frontier, or even undertake much formal research and development, this literature has highlighted a range of technological efforts aimed at adapting and modifying existing technologies. Adaptation and modification of foreign technologies to suit domestic tastes, demand conditions and climatic conditions have been shown to be wide spread among developing country firms.

Technological change in developing countries is minor and incremental
It is also argued that, in contrast to innovation at the global frontier, technological change in developing countries is minor and incremental. The important point is that such minor technological change is also innovative in that it involves technological efforts not previously undertaken by the firms or countries in question (Bell and Pavitt 1992). These findings, therefore, question the earlier blueprint notion of technology which implies that technology imports can be easily assimilated in a estatic?Eand unchanged manner.
Technological changes in developing countries is costly and cumulative process
It has also been emphasized that the cost of technological change in developing countries far exceeds the initial cost of purchasing foreign technologies. Adaptive technological change is shown to require much additional investment, for instance, investment to learn about alternative technique, to modify process technologies and capital goods, to adapt product design to suit domestic market conditions and to acquire the relevant technological skills necessary to undertake technological change. One important conclusion of this literature is that technological change in developing countries is both costly and a lengthy process. For instance, the efforts of the East Asian economies to imitate and adapt existing technologies were partly determined by earlier investments that prompted the acquisition of relevant technological knowledge, capabilities and skills.

Technologies are not easily transferable and technological knowledge is often tacit
This point, made at the theoretical level by evolutionary models, receives much support from the new development literature. Where as the older choice of technique literature assumed that technology imports could be easily absorbed and assimilated by developing countries, the more recent writings emphasize the fact that much technological knowledge is tacit, and remain embodied in individuals and organizations. When developing countries purchase foreign technologies, therefore, it is unlikely that they can obtain all the necessary information required for the efficient operation of that technology. For this reason, the importance of investments to develop the skills and knowledge required to choose, absorb, utilize and adapt technologies is emphasized. This is especially important in developing countries where the overall levels of skills and capabilities are low.

Technological change in developing countries is often innovative and characterized by risk and uncertainty
The recent writings also highlight the fact that technologies are rarely static and absolute. It is argued that technologies are used in a manner that is highly specific to individual firm and countries. This characteristic of technology, referred to as circumstantial specificity, is the primary reason why developing countries adapt and modify imported technologies (Evenson and Westphal 1995). Such modifications are often seen as being ÷Dnnovative?E in the sense that they involve changes previously not undertake by the firm or country in question. Circumstantial specificity together with the tacit nature of technological knowledge, also means that even relatively simple technological activities, such as the purchase of imported technology, can be risky and uncertain. There arise due to the difficulty of obtaining all the relevant knowledge about foreign technologies, and due to the need to adapt and modify them for domestic use. Therefore, many analysts argue that the distinction between innovation and diffusion of existing technologies is often blurred (Lall 2001)

Reference:
Evenson, Robert, and Larry Westphal. 1995. Technological Change and Technology Strategy. in Bechtman and Srinivasan, eds, Handbook of Development Economics, Vol.3A (Amsterdom: North-Holland Press): 2209-299

Lall, Sanjaya. 1987. Competitiveness, Technology and Skills (Cheltenham: Edward Elgar)

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Q6: What are the correlation between innovation-related indicators and economic growth? :4
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InputDate: 7/29/2006

Reference: Kusakabe, Motoo. 2005. ICT and National Innovation System: Is ICT Engine of Growth? Presentation at International Workshop on Workforce Development For Knowledge Economy, 7-13 September 2005, Seoul, Korea
A: What are the indicators relating to the innovation? If we use the broad definition of nation innovation system, it may contain all the entrepreneurship policy, institutions, and all the education, infrastructure and social capital-related indicators. However, in this section, we take some indicators directly related to the new knowledge production process. such as R&D expenditure, number of researchers and technicians, royalty and license fee receipts, patent applications by residents, number of scientific and technical journal articles. Innovation and scientific knowledge are thought to be the essential factor for growth particularly in the world of information and knowledge-based economy.
What is the impact of R&D capabilities on growth?
Main questions to be addressed in this analysis is whether such innovation-related indicators had significant impact in recent years and which income group has such significant impact?

R&D capacity do have a strong impact on growth
As shown in the figure above, statistical correlation between R&D expenditure, number of researchers and technicians in R&D activities in 1990s, and per capita GDP growth rate in 2000s are extremely high. More surprisingly, correlations in lower-income countries are even higher that that of higher-income countries.

This means that the promotion of R&D activities and particularly the number of researchers and technicians to conduct such R&D activities are important growth factor for the developing countries. Because of the data limitation it is not clear whether this high relationship is the recent phenomena or long-standing ones. However, this results is consistent with the stylized model for evolution of the growth pattern based on borrowed technologies to innovative technologies, both requires a human and institutional capacity to absorb sch technologies.

Patent & Science Articles matter for growth
The above figure shows a similar results for other innovation-related indicators; Royalty and License Fee Receipts, Patent Applications by residents, and Scientific and Technical Journal Articles ( all per US$1000 of GDP). Except for royalty receipts, number of patent applications and scientific and technical journal articles in 1990s in lower-income countries are strongly correlated to the economic growth in 2000s

Innovation capabilities are important for growth even in Lower income countries
This analysis has made clear that the innovative capabilities, such as scientists, enginners and technicians engaging in R&D activities, and patents and academic journal articles, are highly relevant to the economic growth of the lower-incom countries. Such conclusions are quite consistent with the major findings of the evolutionary theries.

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Q7: What is the Washington Consensus approach to technology policy? :5
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InputDate: 7/29/2006

Reference: Deraniyanagala, Sonali. 2006. Analysis of Technology and Development. edt. by Jomo KS and Fine. The New Development Economics, Zed Books, London
A: Since the mid-1980s, the dominant approach to development policy has been that of the Washington Consensus, and the area of technology policy is also no exception. This approach was the outcome of several factors: the ascendance of neoclassical economics in advanced countries; the interpretation of the growth crisis in developing countries in the 1980s as being caused by distortions to the market mechanism; and interpretation of the East Asian economic success as being the result of ?ggetting prices right?h .
Avoid market distortions without government intervention
The Washington Consensus paid little attention to an analysis of technology policy. It was assumed that both technology development and industrial growth in developing countries are best nurtured by creating a correct set of incentives and by ?ggetting prices right?h. There was little room for interventionist industrial policy in this approach, and its main task was seen as the creation of freely functioning factor and product markets. It was argued that industrial policy reform should focus on removing ?gpolicy-induced?h distortions arising from state intervention, privatisation, removing entry and exit restrictions on private enterprises, and removal of price controls, discretionary taxes and subsidies (Frischtak 1989). Accordingly, the neoclassical approach way any selective industrial policy that changes market-based resource allocation as distortionary. It was also argued that selective industrial policies are aspecially irrelevant to developing countries due to the large informational requirements beyond the scope of developing country government.

Washington Consensus approach ignores supply-side, and specific characteristics of knowledge and innovation
This approach to industrial policy assumed that technology generation in developing countries would take place solely in response to the creation of correct set if incentives. There was little consideration of the complex nature of technological change and the supply-side factors that generate it. It was assumed that leisse-faire industrial policies would result in optimal allocation of resources for technology development. Underlying this assumption was the neoclassical conceptualisation of technology as being similar to any other good. There was little recognition of the specific characteristics of technology, highlighted by both evolutionary theories and the literature on developing countries. Characteristics, such as the tacit and imperfect nature of technological knowledge and the public good properties of innovation, that are likely to condition the response of economic agents to price incentives were also ignored.
Reference:
Frischtak, claudio. 1989. Competitive Policies for Industrializing Countries (Washington DC: World Bank)

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Q8: What are the Heterodox Approaches to Technology Policy? :5.1
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Reference: Deraniyanagala, Sonali. 2006. Analysis of Technology and Development. edt. by Jomo KS and Fine. The New Development Economics, Zed Books, London
A: In contrast to the Washington Consensus approach, the heterodox literature argues for a much greater role for the government in technology development in developing countries. Three policy interventions are proposed ?Eselective intervention through industrial policy, strategic intervention in trade policy and the creation of dynamic national innovation systems. These three policy interventions are seen as complementary, interacting with each other to promote technological dynamism.
Heterodox Industrial policy requires government interventions
According to the heterodox approaches, rapid technology development in developing countries is unlikely to occur in the absence of interventionist industrial policy. The existence of informational imperfections is seen as requiring interventions to create relevant institutions and infrastructure, especially in relation to the provision of information and knowledge (Stiglitz 1998). The existence of positive technological externalities and spill-overs is seen as requiring selective industrial policies to identify and promote specific sectors where such externalities are widely prevalent (Lall 2003). Poorly functioning capital markets provide the rationale for interventions designed to increase investment in technology generation (Wade 2003).

Empirical case for interventionist industrial policy
The empirical case for intervention through industrial policy is made by analysis of the East Asian economies which show, contrary to orthodox interpretations, that the manufacturing success of these countries was partly a result of highly interventionist, strategic industrial policy (Wade 2003; Chang 2002).Industrial policy in these countries is shown to have promoted technology generation by identifying dynamic sectors, and providing incentives and resources for investment in these sectors (for instance, by limiting entry into specific sectors, thus allowing for the accumulation of rents by early entrants and by provision of subsidized credit). Overall, this type of selective industrial policy is seen as instrumental in creating technological winners ?Esectors that demonstrate high level of competitiveness on international markets.
Reference:
Stiglitz, Joseph E. 1998. More Instruments and Broader Goals: Moving Towards the post-Washington Consensus. 1989 WIDER Anual Lecture, Helsinki, 7 January.

Wade, Robert. 2003. Simposium on Infant Industries. Oxford Development Studies, 31(1): 8-14

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