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Using innovation indicators to measure effectiveness of innovation policies
Empirical Evidence from Five Type 1 Developing Countries
Dr Sunil Mani
United Nations University/Institute for New Technologies
Keizer Karelplein 19
6211 TC Maastricht
The Netherlands E-mail: Mani@intech.unu.edu
SM: USIS, Paris, March 24 2003 2
Outline
The Context
Renewed debate on innovation policies
Content of Innovation policies
Towards a taxonomy of developing countries according to their potential for
creating new technologies
Measuring policy outcomes- Three conventional indicators
Limitations of the conventional approach
A more systematic approach towards innovation indicators
SM: USIS, Paris, March 24 2003 3
The Context
Statistically significant reduction in Business Enterprise R&D and the
complementary role of the government investments in R&D
Lack of systematic evidence for globalisation of corporate innovations;
Growing imperfections in the market for disembodied technology transactions;
and
Lack of systematic evidence on positive technology spillovers to host firms from
the operation of MNCs
SM: USIS, Paris, March 24 2003 4
Statistically significant reductions in business enterprise
R&D
-10
-5
0
5
10
15R
ate
of
Gro
wth
(%
)
USA 5.5 6.7 6.5 9.5 8.8 1.8 1.6 1.4 0.8 3 2.6 -0.8 -4 -0.3 8.1 5 6.4 6.04 6.65
Japan 11 9.3 10.9 9.7 13.2 1.3 6 10.4 11.8 10 2.4 -3.5 -5.9 -1 5.3 0.99 -0.76
OECD 0 6.1 5.8 8.5 10 3.2 3.2 3.9 4.4 0 -1.2 -3.4 0 3.65 5.1
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
SM: USIS, Paris, March 24 2003 5
Reduction in government financing of private sector R&D
0
5
10
15
20
25
30
35
Percentage of Business Enterprise R&D Financed by Government
United States 31.6 31.6 31.7 31.3 32.3 31.8 33.4 31.3 28 25.6 22.5 20.8 19.4 18.8 17.8 16.4 15
OECD 22.6 22.8 22.4 22 22.1 21.8 21.9 20.1 17.9 16.7 15 13.6 12.9 12.2 11.6 10.7 0
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
SM: USIS, Paris, March 24 2003 6
Complementarity between government investments in
R&D and private sector investments in R&D
-20.00
-10.00
0.00
10.00
20.00
30.00
40.00
50.00R
ate
of
Gro
wth
of
R&
D
Rate of Growth of Federal R&D 22.38 45.60 31.15 17.61 7.42 5.68 14.11 1.52 8.28 2.50 -1.94 -1.79 4.10 -0.37 4.04 9.83 6.13 12.31 17.61 11.92 13.42 2.63 10.60 -6.60 -2.11 -7.16 -6.82 4.53 0.84 1.92
Rate of Growth of Private Sector R&D 6.03 33.21 6.89 9.72 5.42 7.73 8.06 11.27 11.14 10.59 4.37 3.56 13.60 11.93 11.90 10.92 16.25 18.55 13.20 11.18 10.97 5.06 8.58 10.24 11.00 4.20 2.69 11.86 10.41
1954 1956 1957 1959 1960 1962 1963 1965 1966 1968 1969 1971 1972 1974 1975 1977 1978 1980 1981 1983 1984 1986 1987 1989 1990 1992 1993 1995 1996 1998
SM: USIS, Paris, March 24 2003 7
Lack of evidence of globalisation of corporate innovations
during the 1990s Percentage Share of US
Patents in 1992-96 Nationality
Home Abroad
Percentage
Share of R&D
Expenditure
Abroad
Change in
percentage of
patents abroad
since 1980-84
Japan 97.4 2.6 2.1 (1993) -0.7
US
92.0 8.0 11.9 (1994) 2.2
Europe
77.3 22.7 3.3
Belgium
33.2 66.8 4.9
Netherlands
40.1 59.9 6.6
Switzerland
42.0 58.0 8.2
UK
47.6 52.4 7.6
Sweden
64.0 36.0 21.8 (1995) -5.7
France 65.4 34.6 12.9
Finland 71.2 28.8 24.0(1992) 6.0
Italy 77.9 22.1 7.4
Germany 78.2 21.8 18.0( 1995) 6.4
All Firms 87.4 12.6 11.0 (1997) 2.4
SM: USIS, Paris, March 24 2003 8
Growing imperfections in the market for disembodied
technology- Evidence i
(1)
Market for
Technology
(Millions of Current
$)
(2)
Rate of Growth of
the Market (%)
(3)
Business Enterprise
R&D (Millions of
Current PPP $)
(4)
Relative Size of the
Market for
Technology
(5 = 2/4*100)
1985-89 27753
1990 24169 -12.91 237603 10.17
1991 41410 71.34 250366 16.54
1992 43571 5.22 256922 16.96
1993 46479 6.67 254090 18.29
1994 51604 11.03 259808 19.86
1995 44469 -13.83 292272 15.21
1996 20761 -53.31 313056 6.63
1997 21956 5.76 NA
SM: USIS, Paris, March 24 2003 9
Growing imperfections in the market for disembodied
technology- Evidence ii
0
5000
10000
15000
20000
25000
30000
35000
40000PaymentsinrespectofTechnologySales(MillionsofUS$)
Receipts 9914 11802 13064 16634 18107 19715 20323 26712 30289 32823 33676
Affiliated 7629 9156 10207 13251 14395 15718 15707 20275 22859 24710 25515
Unaffiliated 2285 2646 2857 3384 3712 3997 4616 6437 7430 8113 8161
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
SM: USIS, Paris, March 24 2003 10
Renewed debate on innovation policies
The existence of Spillover gaps
0
10
20
30
40
50
60
70
80
Social and Private Returnsand the Spillover Gap (in per
cent)
Mansfield et al (1977) 56 25 31
Bernstein-Nadiri (1988) 61 18.5 42.5
Goto-Suzuki(1987) 80 26 54
Social Return Private Return Spillover Gap
SM: USIS, Paris, March 24 2003 11
Renewed debate on the need for clearly articulated
innovation policies According to World Development Report 1998 (WDR) in addition to taking advantage of the large
global stock of knowledge, the developing countries should develop the capability to create knowledge at home. It also acknowledges that 'some types of knowledge must be built from the ground up'. This capability to create knowledge at home must encompass not only strategies to develop knowledge locally but also policies and mechanisms that will eventually enhance the capability of the nation to absorb knowledge. Together these would constitute public innovation policies in the developing-country context. However, the WDR itself does not discuss this in any detail.
Further the recent Human Development Report 2001 of the UNDP also states that the market is a powerful engine of technological progress, but it is not powerful enough to create and diffuse technologies needed to eradicate poverty. Even in the network age, domestic policy still matters. All the countries, even the poorest, need to implement policies that encourage innovation, access and the development of advanced skills;
Most developing countries do not have a policy on innovation, as it is generally believed that developing countries do not engage in any innovative effort at all. At best they are expected to undertake incremental innovations, which are basically the adaptation of imported technologies to local conditions. But the recent growth experience of some of the developing countries and especially those from East Asia shows that they have become generators of new technologies.
SM: USIS, Paris, March 24 2003 12
Content of innovation policies The basic rationale behind public innovation policies is to combat private
underinvestment in R&D. Following Leyden and Link (1992), the scope of public innovation policies can be divided into:
the creation and maintenance of a legal environment conducive to private sector investment in innovative activities. This is created by legal measures which enhance the power to appropriate the fruits of R&D. Patents and the relaxation of antitrust activity are the primary means by which the government creates such a conducive environment; and
the provision of sufficient stimuli to overcome the natural inclination of private agents to consider only their private benefits when choosing the level of innovative activity in which to engage. This takes a variety of forms ranging from governmental grants and contracts to targeted tax incentives.
SM: USIS, Paris, March 24 2003 13
Content of innovation policies Type of measure
Relationship with the market Financial measures Non-financial measures
Public provision of goods and
services
1. Subsidising exchange of
R&D personnel between
public and private sectors
2. Policies aimed at diffusion
of technology
3. Human resources
development policy
4. University and government
R&D
5. Industrial standards
Modification of market
incentives
6. Tax incentives for R&D
7. Direct funding through
grants, soft loans, loan
guarantees for R&D projects
8. Promotion of National R&D
projects
9. Joint cooperative R&D
projects between
government and the private
sector
10. Public procurement
11. particularly in defence
12. The intellectual property
right (IPR) regime
13. Industrial and trade policies
Support of the improvement of
market mechanism
14. Creation or improvement of
specialised financial market
mechanisms (e.g., venture
capital)
Source: Own Compilation
SM: USIS, Paris, March 24 2003 14
Taxonomy of developing countries according to their
potential for creation of new technologies
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
0
1
2
3
4
5
6
7
Group 1 215 254 427 554 750 957 1311 1539 1968 2386 2781 3390 3948 6359 8205 9278
Group 2 214 230 288 300 361 338 349 353 400 430 502 512 544 749 1177 1532
Share of Type 1 world (%) 0.67 0.84 0.98 1.24 1.31 1.63 1.97 2.16 2.64 3.04 3.53 3.86 4.3 5.05 5.55 6.14
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
SM: USIS, Paris, March 24 2003 15
Structure and content of innovation policy across Singapore, Malaysia, South Africa, India and Brazil
Fiscal Instruments
Country Tax incentives for R&D Research Grants Government-backed VC Non-fiscal instruments
1. Singapore Double deduction onR&D expenses for both Manufacturing andservices
•Research incentive schemes for companies•Innovation DevelopmentScheme•Funds for industrialclusters•Promising LocalEnterprise Scheme
Techno-entrepreneurshipFund: the governmentlaunched a US$ 1 billioninvestment fund to attractmore VC activities toSingapore
•Strengthening tertiaryeducation in S&T fields at the university andpolytechnic levels•Engineering to local SMEs from FDI•Strengthening thetechnological infrastructure by setting up 13 GRIs in high-tech areas
2. Malaysia Nine different types oftax incentives for R&D
•Industry R&D GrantScheme•Technology AcquisitionFund•Intensification of researchin priority areas•Commercialisation ofR&D Fund•Multimedia Grant Scheme•Demonstrator•Applicants Grant Scheme
No specific Policy on VC industry
Not clearly articulated
SM: USIS, Paris, March 24 2003 16
Fiscal Instruments
Country Tax incentives for R&D Research Grants Government-backed VC Non-fiscal instruments
3. South Africa Poorly defined taxincentive scheme
•Innovation Fund•Technology and HumanResources for IndustryProgramme (THRIP)•Support Programme forIndustrial Innovation (SPII)•Partnership in IndustrialInnovation
No specific policy on VCindustry
Strengthening tertiaryeducation in S&T fields at the university andpolytechnic levels
4. India Nine different types oftax incentives for R&D
•Programme aimed attechnological self-reliance•Fund for technologydevelopment andapplication•Home grown Technology\Programme•Technology projects onmission mode
•Government-backed VS funds•Reasonably well-articulated publicpolicies for the development ofventure capital
Strengthening tertiaryeducation in S&T fields at the university andpolytechnic levels
Strengthening tertiaryeducation in S&T fields at the university andpolytechnic levels
5. Brazil There are five differenttypes of tax incentivesfor R&D
Three different types ofresearch grants and loans administered by two different agencies of thegovernment
The INOVAR project,which is in its initialstages
SM: USIS, Paris, March 24 2003 17
An ideal sequencing of innovation policy instruments Case of Singapore
i
Innovation Policy
PoliciesforengineeringspilloversfromFDI;
Policiesgoverning theimport of
disembodiedd technology
abroad.
Policies forIndigenisingimported technologiesand local developmentof simple technologies(incrementalinnovations)
Policies for Improving theQuality and Quantity of Human
Resource Toning up primary and
secondary education Improving the quality of
tertiary education andespecially science andengineering
Vocationalising educationby establishing polytechnics
Even allowing themigration of skilledmanpower in selected areaswhere severe shortages arefelt subject to politicalfeasibility
Lead to Creation ofTechno
Entrepreneurs
Policies for Encouraging Smalland Medium enterprises based
on local capital
Various FiscalIncentives:
Research Grants Tax incentives
State sponsored venturecapital
SM: USIS, Paris, March 24 2003 18
Growing imperfections in the market for disembodied
technology- Evidence ii
0
5000
10000
15000
20000
25000
30000
35000
40000PaymentsinrespectofTechnologySales(MillionsofUS$)
Receipts 9914 11802 13064 16634 18107 19715 20323 26712 30289 32823 33676
Affiliated 7629 9156 10207 13251 14395 15718 15707 20275 22859 24710 25515
Unaffiliated 2285 2646 2857 3384 3712 3997 4616 6437 7430 8113 8161
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
SM: USIS, Paris, March 24 2003 19
Measuring policy outcomesIndicator 2: Record with respect to patenting
S in g a p o r e M a la y s ia S A fr ic a In d ia B r a z il 1 9 9 4 3 0 (3 0 ) * 5 (0 ) * 3 0 (6 3 ) *1 9 9 5 2 6 (3 8 ) 5 (0 ) 7 4 (2 2 ) * 2 2 (4 5 ) * * 3 5 (3 7 )1 9 9 6 5 4 (3 7 ) 7 (0 ) 6 7 (2 8 ) 2 2 (5 0 ) 3 7 (3 5 )1 9 9 7 5 4 (5 4 ) 1 3 (0 ) 5 4 (2 0 ) 3 8 (6 1 ) 3 0 (5 0 )1 9 9 8 8 0 (5 5 ) 1 4 (0 ) 5 0 (1 2 ) 6 2 (6 3 ) 4 9 (4 7 )1 9 9 9 1 1 2 (5 0 ) 2 0 (0 ) 3 9 (1 0 ) 8 0 (6 9 ) 5 4 (4 4 )
N o te s : * F ig u r e s in b r a c k e ts in d ic a te p e r c e n ta g e s h a r e o f lo c a l c o m p a n ie s in th e
to ta l n u m b e r o f p a te n ts th a t a r e g r a n te d in th e U S ;
* * T h e In d ia d a ta in c lu d e s th o s e g r a n te d to lo c a l c o m p a n ie s a n d g o v e r n m e n t
r e s e a r c h in s t i tu te s
SM: USIS, Paris, March 24 2003 20
Measuring policy outcomesIndicator 3: High-tech export intensity of manufactured exports
Singapore Malaysia India South Africa Brazil1989 37.23 38.39 4.27 6.341990 39.97 38.23 3.98 6.531991 40.11 38.24 4.71 5.241992 44.82 38.96 4.06 4.83 4.971993 46.42 41.13 4.27 4.73 3.981994 50.71 44.25 4.8 4.91 4.621995 54.16 46.13 5.83 5.77 4.911996 55.71 44.41 6.9 5.7 6.251997 57.04 49.02 6.56 7.59 7.591998 59.07 55.04 9.49
SM: USIS, Paris, March 24 2003 21
Density of research scientists and engineers engaged in R&D, 1978-2001
(number per 10, 000 labour force)
Singapore Malaysia India South Africa Brazil 1978 8.41981 10.6 7.091984 18.4 7.571987 25.3 7.641990 27.7 9.05 331991 33.61992 39.8 2.1 7.471993 40.5 71994 41.9 5.81995 47.7 61996 56.3 5.1 8.241997 60.2 71998 65.5 5.8 16.31999 69.92000 83.52001 87.6
SM: USIS, Paris, March 24 2003 22
Limitations of Conventional Indicators(Source: Archibugi, Danielle and Giorgio Sirilli (2000), ‘The Direct Measurement of Technological Innovation in Business
in Innovation and enterprise creation: Statistics and indicators. Proceedings of the conference held at Sophia Antipolis, Novembeer 23024 2000, ftp://ftp.cordis.lu/pub/innovation-smes/docs/statconf_paper_a.pdf
SM: USIS, Paris, March 24 2003 23
Non-conventional indicators- The Innovation Surveys(Source: Archibugi, Danielle and Giorgio Sirilli (2000), ‘The Direct Measurement of Technological Innovation in Business in Innovation and enterprise creation:
Statistics and indicators. Proceedings of the conference held at Sophia Antipolis, Novembeer 23024 2000, ftp://ftp.cordis.lu/pub/innovation-smes/docs/statconf_paper_a.pdf
)
SM: USIS, Paris, March 24 2003 24
Non-conventional indicators of technological innovation
The case of Community Innovation Surveys in the context of European Union countries The Community Innovation survey (CIS), launched in
1991 jointly by Eurostat and the Innovation and SME Programme, aims at improving the empirical basis of innovation theory and policy at European level through surveys of innovation activities at enterprise level in the Member States.
CIS surveys collect firm-level data on inputs to, and outputs of, the innovation process across a wide range of industries and across Member States and regions in a way that allows their use in high-quality analyses
The first Community Innovation Survey, CIS I, had been launched in 1992.The second survey started in 1997 and was completed in 1999.The 3rd survey is now being carried out, the first results were expected for the end of 2002. But according to Eurostat, “up till now (November 15 2002, only 5 out of 14 countries with grant agreement with the Commission have provided Eurostat with source and final CIS3 data (FIN, S, DE, A, DK).
The data:
are collected at enterprise level. The harmonised survey gives policy makers and analysts information not only on the sectoral level, but also a detailed picture of innovation activities at the level of European enterprises
are comparable at European scale. It provides for the first time internationally comparable data on non-R&D resources, devoted to innovation and on the output of the innovation processes.
are representative. It is the first time that such a harmonised business survey has been implemented at large scale in all EU Member States.
collection is done at regular intervals,
SM: USIS, Paris, March 24 2003 25
Some critical issues in the context of CIS
The unit of analysis- problems involved when firms outsource their output
An adequate definition of innovation- innovation is a culture sensitive term
Issues regarding comparability between sectors
SM: USIS, Paris, March 24 2003 26
The Experience with respect to Innovation surveys in the context of developing countries
Of the five developing countries in my sample, three of them (namely Brazil, Malaysia and South Africa ) have experience with innovation surveys similar to the CIS.
But the response rate to these surveys never exceeded 10 per of the sample and hence the results are
unrepresentative.
In South Africa, hitherto two innovation surveys have been conducted. The results of the first survey was published in 1996 and the second one which was initiated in 2001 is expected to be published in March 2003. However the latest status report (as on November 30 2002) indicates that the actual coverage was only 8.4 per cent (616 firms)of the stratified sample of 7339 firms. The sample itself was only 43 per cent of the total population. This means that the actual response was only 3.6 per cent of the total population;
Malaysia too have conducted two innovation surveys. The first one referring to 1994 was published in 1996 and the second one which covered the period 1997-1999 was published in 2002.. The response rate was 26 per cent.
In Brazil, innovation survey is only conducted for the state of Sao Paulo
SM: USIS, Paris, March 24 2003 27
A more systematic approach towards innovation
indicators
Structure of the economy and the manufacturing sectorIssue Indicator
Relative importance of themanufacturing sector
Structure of the manufacturing sector
Share of value added of the manufacturingsectorIndustry-wise distribution of themanufacturing sector in terms of valueadded and value of output
Measuring policy outcomesa. Conventional indicators
b. Non-conventional indicators
Gross expenditure on R&D:performance and financing of R&D
Performance with respect to patentingboth domestically and abroad- share oflocal institutions (government researchinstitutes and enterprises) High tech content of manufacturedexports and its content
Equivalent of Community InnovationSurveys- qualitative measures ofinnovation
Innovation policy measuresHuman resource requirements forinnovation
Financial instruments for encouraginginnovative efforts at the firm-level
Supply of scientists and engineers-density of scientists and engineers-enrolments in science andengineering at the graduate level-incentive systems for R&D scientistsand engineers- programmes forencouraging the movements ofscientists and engineers betweenuniversities/research institutes andindustry.
Tax incentives of various sorts; Research grants of various sorts
Measures to encourage the formation of technology-based enterprises
Venture capital and its role in financinginnovation
Stage-wise distribution of VCassistance
Technology-wise distribution Venture capital development index
SM: USIS, Paris, March 24 2003 28
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