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INTERIM REPORT IR-98-030/June

National System of Innovation: A Note on

Technological Asymmetries and
Catching-Up Perspectives
Mario Cimoli ([email protected])

Approved by
Giovanni Dosi ([email protected])
Leader, TED Project

Interim Reports on work of the International Institute for Applied Systems Analysis receive only
limited review. Views or opinions expressed herein do not necessarily represent those of the
Institute, its National Member Organizations, or other organizations supporting the work.
Contents
1. Introduction 1
2. Asymmetries in technology and growth 2
3. NIS-competencies and economic performances 4
4. NIS: consequences for forging ahead, catching-up and falling behind 9
5. Conclusions 15
Abstract
The main propose of this paper is to describe a simple model for the understanding of
empirical and analytical potential achievements of the NIS approach , particularly with
regards at the sources that explain different growth performances across countries. First,
this paper provide a summary view of the neo-Schumpeterian approach and its main
contributions on technology as an important source of asymmetries between countries, in
terms of trade specialization, forging ahead, catching-up and falling behind perspectives.
Second, the paper suggest the hypothesis that NIS could be considered as an useful proxy
of the institutional differences and support the idea of the increasing importance of
“created assets” in the explanation of growth and specialization performances. By
introducing this macro-representation a comparative analysis of the “goodness” or
“badness” of the NIS in terms of the main implication for specialization and economic
performances, as different scenarios characterized by catching-up, falling-behind and
forging ahead perspectives, could be possible. Third, throughout this discussion it is
pinpointed that the interplay between NIS and performances is not linear and a
deterministic conclusion cannot be drawn. It is particularly stressed that the nature of the
interplay between NIS and economic performances is also shaped, among others, by the
historical events related to industries and technological strategies, the specialization
pattern, the constraints imposed by trade balance conditions and the policies related to the
macroeconomic setting and exchange rate stabilisation policies. The last section contains
a simple graphical model of the interplay between NIS, competencies and growth
performances.
Acknowledgments
A number of people commented helpfully on different versions of this essay. I
particularly want to thank the following, without implicating them in any ways: Mario
Capdevielle and Giovanni Dosi. Research leading to this work has benefited at the
various stages from the support of the MURST 40% (Crescita Endogena nelle Aree
Arretrate, Ministero dell’Università e Ricerca Scientifica e Tecnologica, Italia).
About the Author
Department of Economics, University of Venice “Ca’Foscari”
National System of Innovation: A Note on
Technological Asymmetries and
Catching-Up Perspectives
Mario Cimoli

1. Introduction

What distinguishes the National Innovation System (NIS) across different countries? How
much could NIS be considered as an useful analytical framework to explain growth performances?
Which kind of representation can supersede the “push policy view “ of NIS approach? These
questions are worthy of particular attention for the understanding of empirical and analytical
potential achievements of this approach.
First, I shall provide a summary view of the neo-Schumpeterian approach and its main
contributions on technology as an important source for growth. In doing so, this approach has
introduced technological asymmetries between countries as a crucial aspect to explain trade,
specialization, forging ahead, catching-up and falling behind.
Second, I shall suggest the hypothesis that NIS could be considered as an useful proxy of
the institutional differences and support the idea of the increasing importance of “created assets” in
the explanation of growth and specialization performances. The importance of the institutional
dimension should come as no surprise, supported by a growing evidence from both micro and
macro patterns of technological change. After all, at the micro level, technologies are to a fair
extent incorporated in particular institutions, the firms, whose characteristics, decision rules,
capabilities, and behaviours are fundamental in shaping the rates and directions of technological
advance. However, although the NIS concepts can be useful to capture differences across countries,
by explicitly referring to a longer essays by the author (Cimoli and Della Giusta (1997)) a
schematic representation of NIS and their interplay with the economic performances will be
introduced. By introducing this macro-representation a comparative analysis of the “goodness”
or “badness” of the NIS in terms of the main implication for specialization and economic
performances, as different scenarios characterized by catching-up, falling-behind and forging
ahead perspectives, could be possible.
Third, throughout this discussion it will be pinpointed that the interplay between NIS and
performances is not linear and a deterministic conclusion cannot be drawn. It will be particularly
stressed that the nature of the interplay between NIS and economic performances is also shaped,
among others, by the historical events related to industries and technological strategies, the
specialization pattern, the constraints imposed by trade balance conditions and the policies related
to the macroeconomic setting and exchange rate stabilisation policies.
 2

In the first section a discussion of the main approaches that explain technological
divergence and convergence will be presented. In this context, it will be emphasised that another
element identified as the “national institutional dimension” has to explicitly taken into account for
the understanding of the interplay that exists between technology, specialization and growth.
Section two is devoted to a macro-representation of NIS which potentially captures and
identifies at the micro, meso and macro levels the main threads that link innovation, institutions,
competencies and economic performances. Section three, contains a simple graphical model of
the interplay between NIS, competencies and growth performances. In section four a brief
conclusion is included.

2. Asymmetries in technology and growth

Since the 1960's, the central purpose of most contributions in the field of technology
and trade has been to highlight the crucial importance of technological change and innovation in
explaining the international trade pattern; e.g. Posner (1961), Freeman (1963), Hirsch (1965),
Hufbauer (1966) and Vernon (1966). This approach has stressed international asymmetries in
1
technology as the main determinant of trade flows and specialization patterns .
In Posner (1961), the pattern of trade is explained by the initial asymmetric access to
technological knowledge in a world characterized by similarities in demand patterns. In this
context, trade between countries will be maintained if the differences in national abilities to
innovate and imitate persist. After a lapse time, most countries can imitate the new commodity
and restore technological parity, also eliminating the basis for trade. Freeman (1963) and
Hufbauer (1966) have stressed the differences in the factors which determine specialization
before and after the imitation process takes place. Thus, during the innovation process the
effects of patents, commercial secrecy, static and dynamic economies of scale prevail. However,
once imitation occurs, specialization will be determined by the traditional process of adjustment
in production cost and competitiveness.
In Hirsch (1965) and Vernon (1966), technological asymmetries are associated to
distinct phases in the evolution of a technology and a specific international distribution of
innovative capabilities in the production of new commodities. Innovative advantage is the main
feature of the initial phase, explaining the production of new commodities in the advanced
countries. Over time, technology evolves into a mature phase, characterized by the
standardisation of products and processes. In this latter phase, international competition is based
on production cost advantages and technology can be transferred to less developed economies,
whose comparative advantage lies in their lower real wages. In this respect, the pattern of trade
is considered a process of technological divergence and convergence, for which the innovative
process induces divergence while imitation and diffusion induce convergence between
2
countries .
In doing so many of these studies have undoubtedly scored points with policy makers
who have increasingly come to recognise the significance of technology for international
competitiveness. The theoretical basis of these contributions remains, however, poor. This is in
fact not surprising. The introduction of "technology" in any kind of trade model, whether of the

1
In these approaches: technology is considered as a good that is not free providing an important advantage to the first
innovator country.
2
A variety of models which capture the dynamics of specialization in term of substituting process between new and
standard (old) commodities has been recently introduced; among others, see: Krugman (1979) and Dollar (1986).
 3

classical or neo-classical sort, raises many challenges. The complexity of the phenomenon of
technological change on the one hand (with its dual impact on efficiency and new demand) and
the essential dynamic "change" perspective implicit in the concept of technological change on
the other, are difficult to handle in their globality in any kind of economic model.
The recent evolutionary formal approach puts increasing attention to uneven
international technological change as an engine of growth with emphasis on the dynamics of
specialization as in Metcalfe (1989), Metcalfe and Soete (1984), Amable (1992), (1993), Boggio
(1993) and Soete and Verspagen (1992) and, on the dynamics of catching-up as analysed in
Verspagen (1990), (1991), Dosi and Freeman (1992) and Fagerberg (1995a).
In this context, the formal approach developed in Dosi and Soete (1983), Dosi, Pavitt
and Soete (1990), Cimoli (1988), Cimoli and Soete (1992), Canter and Hanusch (1990) has
pinpointed the importance of the interplay between absolute and comparative advantages as
determinants of the participation of each country in world trade, the dominance of technological
gaps in the process of international specialization, and the bounds imposed by the dynamics of
innovation and trade on the "growth possibility sets" of each economy. On the determinants of
absolute and comparative advantages, technological gaps -in terms of product and process
innovation- and institutional asymmetries -in terms of the main form of organization of labour
markets- contribute to determining the pattern of specialization and its evolution over time. On
the demand side, on the other hand, asymmetries in national consumption patterns, regarding
price and income elasticities, play a crucial role on the interplay between specialization and
macroeconomic level of activity. Finally, the trade balance condition determines the growth rate
3
differential of trading economies .
Under this approach, it has demonstrated that the growth of relative trading partners
depends not only on the demand structure of each economy constrained by the conditions of the
balance of payments, but also, particularly, on differences in technology. Furthermore, the
technological gap is introduced as one of the main variables explaining the pattern of growth
possibilities through the effect of what we will refer to here as the technological gap multiplier
which accounts for the initial distance between countries in terms of technological capabilities.
Wide differences apply to the capabilities of developing new products and to different time
lags in producing them after they have been introduced into the world economy. Indeed, the
international distribution of innovative capabilities regarding new products is at least as uneven as
that regarding production processes. For example if one takes international patents or the number
discrete innovation as a proxy for innovativeness, the evidence suggest that the club of the
innovators has been restricted over the whole past century to a dozen developed countries with only
one major new entry, Japan. Second, the process of development and industrialization are strictly
linked to the inter and intra-national diffusion of "superior" techniques. Relatedly, as already
mentioned, at any point in time, there is likely to be only one or, at most, very few "best practice"
techniques of production which correspond to the technological frontier. In the case of developing
economies, the process of industrialization is thus closely linked with the borrowing, imitation and
adaptation of established technologies from more advanced economies. These processes of
adoption and adaptation of technologies, in turn, are influenced by the specific capabilities of each
economy.

3
The main characteristics of this approach can be viewed not only in terms of modelling methodologies, but also in
the ways in which some of the empirical properties of the world economy are considered. Thus, the
structuralist/evolutionary approach has tried to account for what can be reasonably considered as some fundamental
properties affecting the interplay between trade and growth: a) the different commodities show a wide range of price
and income elasticities; b) the rate of growth of each economy is normally constrained by the need to balance the
foreign account; c) wage rates are mainly determined by institutional factors which account for the mechanism that
relates wage and productivity over time; and d) the interplay between technical change, trade, and growth has to be
interpreted as a mechanism that generates a tendency to converge to an equilibrium in the world rate of growth only
as a particular case.
 4

3. NIS-competencies and economic performances

Government intervention in the Latin American and the Pacific Rim NIEs played an
essential role in industrialization, but with opposite orientations with respect to market
orientation and specialization. The Latin American NIEs have been characterized by production
for domestic markets, whereas the Southeast Asian ones by export orientation and specialization
in manufactured commodities. In the latter group of economies, a particular emphasis has been
put in the promotion of linkages across enterprises, often with the involvement of MNEs
subsidiaries, with the scope of promoting a stable access to technology transfer and a fruitful
mode of diffusion into the whole economy. Another essential aspect in the development of these
countries has been that of human capital formation; the role in industrial development of the
scientific and educational system, in particular, has been repeatedly underlined in the literature
on the Asian NIEs, where it has been often indicated as a fundamental precondition to their
success. On the whole, the general pattern of incentives defined by the existing institutions has
accounted for the type of response to internal and external stimuli which has determined the
relative successes, and failures, of the NIEs.
A significant body of literature exists explaining the importance of institutions and their
role in economic and industrial development. In particular, regarding the Pacific Rim NIEs, the
works by Amsden (1989), Wade (1990), Cantwell (1991) and many others help to understand how
not only institutional success exist, but institutional failure too. Bardhan (1996) analyses such issue
as one of co-ordination, which has to be seen in terms of the interaction of distributive conflicts
with state capacity and governance structure. The author suggests that the success of institutions in
some NIEs (namely South Korea and Taiwan) has to be understood in terms of the capacity of
establishing and applying rules of performance criteria, so that, for example, credit allocation by the
state was tightly bound with export performance; in this way, international competition was used to
foster internal learning. Most of these approaches point out that growth is not automatic. Growth
needs of a “social capability” which can be viewed as a “... rubric that covers countries’ levels of
general education and technical competence, the commercial, industrial and financial institutions
that bear on their ability to finance and operate modern, large-scale business, and the political and
social characteristics that influence the risks, the incentives and the personal rewards of economic
activity including those rewards in social esteem that go beyond money and wealth” (Abramovitz
1994).
These patterns provide examples of the functioning of what could be understood as
4
NIS . Within this context, a variety of overlapped NIS concepts, with different emphasis at the
firms, meso and macroeconomic levels, have been recently introduced (Edquist, 1997). Think to
the concepts introduced in Freeman (1987) and Nelson (1993), here within the national
boundaries the attention is given at the analysis of a set of actors -firms and, particularly, other
institutions such as universities, research organizations, etc- and the links between them in the
innovation an diffusion process. Metcalfe (1995) provides a policy oriented definition of
National Innovation System as a “set of institutions which jointly and individually contribute to
the development and diffusion of new technologies and which provides the framework within
which governments form and implement policies to influence the innovation process”. He
argues that the nature of each NIS is fundamentally shaped by both the division of labour and
the peculiarities of information, which cause a predominance of co-ordination by non-market

4
In this context, the Abramovitz notion of differentiated "social capabilities" is quite consistent with this view
(Abramovitz (1989)).
 5

means. The institutions that compose them (private firms, universities and other educational
institutions, public research labs, private consultancies, professional societies, industrial
research associations) “make complementary contributions but they differ significantly with
respect to motivation and to a commitment to dissemination of the knowledge they create”. A
more recent analysis referring specifically at the NIS approach in the NIEs can be found in the
works by Katz (1997), Kim (1997) and Lall (1997). The argument here putt the emphasis on the
“message” that growth and catch-up potentiality are clearly related to country historical paths and
development of a local NIS. Institutions, industrial and S&T policies -as those that support science,
human capital, competencies and learning capabilities- are the main variables introduced to explain
differences between the NIS developed in Latin American and Asian NIEs.
The evolutionary foundations which account for the characteristics of national systems of
production and innovation develop through to the ideas that firms are repositories of knowledge,
that they are nested in networks of linkages with other firms and also with other non-profit
organizations (networks which enhance the opportunities facing each firm to improve their
problem-solving capabilities), and finally that there exists a broader notion (at a wider level of
aggregation) of embeddedness of microeconomic behaviours into a set of social relationships, rules
and political constraints (Granovetter 1985).
Even at a properly micro level, the momentum associated with single technological
trajectories is itself a largely social concept: "it points to the organizations and people committed by
various interests to the system, to manufacturing corporations, research and development
laboratories, investment banking houses, educational institutions and regulatory bodies" (Misa
1991: p. 15). And, in turn, these interests and institutions are sustained by the increasing-return and
local nature of most learning activities. Even more so, at a system-level, the interpretation presented
here is consistent, and indeed complementary, with institutional approaches building on the
observation that markets do not exist or operate apart from the rules and institutions that establish
them and that "the institutional structure of the economy creates a distinct pattern of constraints and
incentives", which defines the interests of the actors as well as shaping and channeling their
behaviours (Zysman 1994: pp. 1-2).
Nations are characterized by particular modes of institutional governance which to a
certain extent make them diverse auto-reproducing entities. Moreover, there exist an element of
nationality which is provided by the shared language and culture, and by the national focus of
other policies, laws and regulations which condition the innovative environment (Metcalfe,
1995). Together, they contribute to shape the organizational and technological context within
which each economic activity takes place. In a sense, they set the opportunities and constraints
facing each individual process of production and innovation - including the availability of
complementary skills, information on intermediate inputs and capital goods, and demand stimuli to
improve particular products. Institutional and technological diversities are seen in this context as
the true determinants of development The processes described here are in fact inherently co-
evolutionary (Nelson, 1992) in nature and therefore characterized by constant feedback
mechanisms. Such feedbacks take place essentially between performance and competence, but
the role of the institutional strategies remains essential in the process.
In this section, I shall propose a concept and representation of NIS whereby their main
feature will be related to empirically capture the main features that explain technological
asymmetries introduced above and some pieces of the case studies on NIS. Moreover, through
the systematisation of this representation, two different attempts will be pursued. On the one
hand, the major task of this interpretation will be devoted to the identification of an aggregate
structure where the main threads that link technology, institutions, competencies and economic
performances may be placed and described. On the other hand, an implication of this view is
related to a broader set of approaches that look for a framework where the mechanism that
supports technical change and innovation could be understood, so that governments could form
and implement policies in order to influence the innovation process (Cimoli and Della Giusta
 6

1997).
In order to put together the components regarding the asymmetries in technology which
have been developed so far, and therefore trying to provide a further step in the understanding
of the process of technological change at institutional levels. It now propose the idea of a set of
technological capabilities (evolving in both time and space), defined by competence (that
essentially refers to a firm, organization and country abilities to solve both technical and
organizational problems) on the one side, and performance (as measured by variables such as
competitiveness, and contribution to industrial growth) on the other. In between these two
entities, and shaping their interaction (and therefore causing the magnitude of the span that
exists between the two) lies the national innovation system, acting at both the national and
5
regional levels and therefore possessing an inherently local nature (see, figure 1) .

Figure 1: A point in the set of technological capabilities defining the state of an economic
system (Cimoli and Della Giusta (1997)

Macro-system

NIS
Performance Performance
Competence

NIS

The hypothesis here is that differences in technological capabilities are a fruitful starting
point for a theory showing how technological gaps and national institutional diversities can jointly
reproduce themselves over rather long spans of time in ways that are easily compatible with the
patterns of incentives and opportunities facing individual agents, even when they turn out to be
profoundly suboptimal from a collective point of view. Conversely, in other circumstances, it might
be precisely this institutional and technological diversity among countries which may foster
catching-up (and, rarely leapfrogging) in innovative capabilities and the per capita incomes.
Rigorous demonstrations of these propositions would indeed require many intermediate steps,
linking externalities and positive feedback mechanisms based on technological learning with the
institutional context in which microeconomic agents are embedded, and also the economic signals
they face. Here let us just emphasise that systematically different rates of learning might have very
little to do with "how well markets work". Rather, incentives and opportunities which agents
perceive in a particular context are themselves the result of particular histories of technologies and
institutions.
Moreover, by systematising the difference between competence and performance, it
could also become possible to create a concept of measurement of the “goodness” or “badness”

5
Other definition of National Technological capabilities which capture the main features of learning and institutional
setting is associated to “...complex of skills, experience and conscious effort that enables a country’s enterprises to
efficiently buy, use, adapt and improve and create technologies. The individual enterprise is the fundamental unit of
technological activity, but national capability is larger than the sum of individual firm capability. It comprise the non-
market system of linkages , business culture and institutions that enable firms to interact with each other, exchanging
the information needed to co-ordinate their activities and to undertake what effectively amounts to collective
learning.” (Lall (1997)).
 7

of the NIS. Through the representation introduced above it is possible to explain why
technological gaps among countries reproduce themselves over time due to the fact that
individual behaviours (in response to the existing patterns of incentives and opportunities)
produce suboptimal collective outcomes. In other words, the existence of diverse institutions
and organizations and their modes of interaction determines specific national systems of
innovation which over time present certain invariant characteristics which account for their
phases of relative “technological success and failure” (Cimoli and Dosi, 1994). When organized
appropriately, NIS are a powerful engine of progress; poorly organized and connected they may
6
seriously inhibit the process of innovation (Metcalfe, 1995) .

Figure 2: A simple representation of the interaction between competence and NIS.

Macro economic Higher education
setting: Inflation institutions(HEIs), Research
rate, Exchange rate, & technological
Literacy rate (secondary
Fiscal policy development, organizations GDP per capita, Rate of
and tertiary levels
Regulatory setting: (RTOs), Industrial research growth of GDP, Exports
enrolment ratios), Third
Trade policy Credit laboratories (IRLs), as % of GDP,
level students (in maths,
system, Property Government research Productivity growth,
science and engineering),
rights system, institutes (GRIs), Military Sectoral distribution for
Scientists and engineers in
Market regulation research institutes (MRIs), GDP and exports in
R&D, Re-
mechanisms Agencies for education and terms of technological,
educated/retrained labour
Industrial and training programmes classification (eg
force, R&D in GNP,
trade policies: (AETs), Certificated Pavitt’s taxonomy),
Military expenditure in
horizontal vs research and technology International market
R&D, Ratio of private vs
vertical policies, Organizations (CRTOs), share of exports and
public R&D, Investment in
intervention at Technological information imports, Empoloyment
science parks, Direct FDI
sectorial and micro centres (TICs), in manufacturing
stock, Imports of capital
level, Organizations supporting sectors
goods
discrimination on science parks (OSSPs),
technology and FDI Technology transfer-
flows institutions (TTIs)

NIS (Institutional Vector of

Macro Performance
matrix) competence
In providing this tentative representation of the processes described above, we are aware of the
oversimplification entailed by the implicit assumption that we are making; namely, that the
vector of competencies and the matrix of NIS must be of compatible dimensions (i.e. to each
component of competence should correspond a component of NIS), and that there still exists the
problem of defining and measuring such components. The latter, furthermore, is complicated by
the presence of all those informal types of relationships between organizations and institutions
(and among both sets of actors) that in standard literature fall under the heading of
“externalities”. Clearly, further investigation will be required in order to provide a more solid
base to this representation of our structure, nonetheless, we believe that the structure would

6
There also exists an international dimension given by MNEs strategies that provokes slipover effects of technology
policies of one nation on those of the others. Increasing mobility of firms resources (FDI, strategic alliences estc) and
the globalising of the world economy can modify the main elements that explain the origin and the orientation of the
NIS-competence, in term wheter it is biased in favor of the MNEs strategy or mainly determined by the country
scientific and technology policy. On the other hand, the national unit is too large to understand the effects of the
innovative process in a particular area: it becomes therefore important to focus on the appropriate unit of analysis,
and therefore on distinct systems geographically and institutionally localized.
 8

provide a help in the understanding of the mechanisms by which NIS determine the success and
failure of technological progress, and therefore the positioning of the set of technological
capabilities.
At a system level, there exist some macro-level indicators of policy that, in our opinion,
have to be viewed as both conditioning elements and results of the system’s performance
(macro economic and regulatory settings, Industrial and trade policies).
The matrix of the NIS is akin to the concept of “institutional matrix which supports and
sustains the activities of innovating firms” proposed by Metcalfe (1995), and although the
representation is linear, it must be borne in mind that this is so only for the sake of
representation. In this framework, the possibility of institutional failures becomes incorporated
into a broad structure which is able to account for the interactions among the main agents in the
process of development. The essential feature of this system is constituted by the interface
between capabilities and performance and the role that the NIS plays in it as the wider
representative of institutions (both public and private). Knowledge flows are embodied into
individuals and their organizations, as stated above, and therefore it is obvious that the central
part in the system is played by a collection of institutions. Most countries are characterized by
different type of institutions which however could be distinguished according how these
contribute to the development of technologies and the role that play in the whole system. Thus,
one can think at the following institutions as a sort of representative sample of those actually
existing in different countries: higher education institutions(HEIs), research & technological
development organizations (RTOs), industrial research laboratories (IRLs), government
research institutes (GRIs), military research institutes (MRIs), agencies for education and
training programmes (AETs), certificated research and technology organizations (CRTOs),
technological Information centres (TICs), organizations supporting science parks (OSSPs),
technology transfer-institutions (TTIs).
At a national level, competencies are clearly very difficult to be stimated and quantified.
Thus, the country efforts to create these could be considered as proxies of the main
7
competencies available in each economy . Competencies can be identified as those which
pertain to the following groups: educational (literacy rate, secondary and tertiary level
enrolment ratios, third level students in maths, science and engineering), R&D efforts (scientists
and engineers in R&D, R&D in GNP, ratio of private and public R&D), technology transfer
efforts (direct FDI stock, imports of capital goods). A essential aspect of competencies regards
its interplay with the catch-up argument. In particular, when a country behind the world
innovation frontier is considered, most of the competencies variables could be considered as a
support for the scope for imitation. Thus, through the representation introduced above a catch-
up processes based on borrowing, imitation and adaptation of stablished technologies from more
advanced countries is captured (Gomulka (1971), Abramovitz (1989), Maddison (1991),
Fagerberg (1995a)).
Economic performances depend on how each country implements policies (to stabilise
the macroeconomic setting, to promote the industrial sectors) and organizes its institutional
matrix and competencies. The relevant variables which can be considered as a proxy for the
scope of catch-up are: GDP per capita, rate of growth of GDP, exports as % of GDP,
productivity growth, technological sectoral distribution for GDP and exports in terms
technological classification (Pavitts taxonomy or others), international market share of exports
and imports and employment in manufacturing sectors.

7
“Competencies” here are used in a specific sense capturing those that are developed in the industrial sector (firms,
instituttions etc), incorporated in the human capital and specific institution dedicated to support innovative activities.
The definition utilised here include only the efforts address to the innovative activities while performances, in terms
of export activities and growth, are viewed as the outcome of the above representantion.
 9

4. NIS: consequences for forging ahead, catching-up

and falling behind

By referring to the trade and growth analysis introduced above it is possible to draw an
interpretation and representation of the main interplay between the NIS and growth
8
performances .
Within the learning economics, the mechanisms of adoption and learning substantially
modify -and add new interpretations to- the cost functions faced by the sectoral country
productivity. The description of the process proposed here explains how unit costs decrease in
accordance to a technologically determined learning curve, with competencies clearly possessing a
9
cumulative character . This process has been adapted in the evolutionary-structuralist models
which introduced some sort of Verdoorn-Kaldor law for the explanation of the interplay
10
between learning, dynamics of productivity and trade specialization . The introduction of
endogenous dynamics increasing return is displayed by a mechanism which explanation gains in
11
specialization in terms of an increase on exports and higher international market shares .
In the following figure, we have a representation of the interplay that exists between
productivity (π) and exports (z)12; whereas each schedule π-z shows that changes in
productivity are leaded by exports increasing . Thus, under the assumptions that a change in

8
The graphical model presented in this section has been adapted from Dosi, Pavitt and Soete (1990) and Cimoli
(1994).
9
It is extremely interesting to note how the existence of increasing returns to adoption is equally explained by the micro-
level process Dosi (1984).
10
A paradigm-based theory of innovation and production seems to be highly consistent with the evidence on the patterned
and cumulative nature of technical change and also with the evidence on microeconomic heterogeneity and technological
gaps. Moreover, it directly links to those theories of production which allow for dynamic increasing returns from A.Young
and Kaldor to the recent and more rigorous formalizations of path-dependent models of innovation diffusion, whereby the
interaction between micro decisions and some form of learning or some externalities produces irreversible technological
paths and lock-in effects with respect to technologies which may well be inferior, on any welfare measure, to other
notional ones, but still happen to be dominant - loosely speaking- because of the weight of their history (cf. the models by
B. Arthur and P. David). However, paradigms are generally embodied in larger technological systems and in even larger
economic-wide systems of production and innovation. These evolutionary characteristics of the process of technical
change are seen in a complementary perspective as responsible for the occurrence of what has been called “lock-in by
historical events” (Arthur, 1989). This suggests a view of the process of selection and adoption of technologies
dominated by path-dependency, unpredictability, inflexibility (the more widespread the adoption of a particular
technology, the fewer the chances of another of being adopted) and possible selection of inferior technologies (an
example of the latter is the adoption of light-water reactors instead of gas-cooled reactors, which are now considered
inferior). For example, Genthon (1995) discusses at length the failure of piecemeal national champion European
policies, a failure that presents some sort of similarity with the dramatic failure of such major attempts to building an
independent computer industry as those of Brazil and India at the dawn of the personal computing era (Delapierre and
Zimmermann, 1986; Gaio 1990). Several implications are derived from this (especially interesting are those
concerning the catching-up by developing countries), among which the fact that the history of a firm (in terms of the
techniques it is and was able to master), sector and institutions are very important in determining its current choices
of technique and that phenomena of path dependency and lock-in by historical events would emerge.
11
All this is to reconsider dynamic comparative advantages as a useful principle for the explanation of trade
performance and, particularly, a dynamics comparative advantages principle based mainly on “learning dynamics” and
not exclusively on the differences in terms of “natural” assets (oil, coffee, labour etc) and “created” ones (SNI-
competences).
In this respect, π is considered as the average labour productivity in the industrial sectors. However, this analysis
12

could be extended to a reconsideration of caspital inputs, see Dosi, Pavitt and Soete (1990).
 10

productivity affect the whole range of commodities produced13, an increase in the country’s
exports -higher participation in the world economy and market shares for the commodities
already exported- will lead to a higher productivity via learning mechanisms, organizational
14
change and quality improvments .
By referring to these relationships different schedules of specialization and productivity
can be obtained. Looking figure 3, an increase on domestic competencies (literacy rate,
secondary and tertiary levels enrolment ratios, third level students in maths, science and
engineering, scientists and engineers in R&D, R&D in GNP (private and public R&D), direct
FDI stock, imports of capital goods, etc.) moves the function on the right side and will increase
the number and type of commodities exported. In the high NIS-competencies area, the number
of commodities produced and exported will be increased (new international markets could be
gained for “new” commodities that has been already imported or produced only for the local
market). Two simple and schematic process are here described. First, a country can gains in
terms of dynamic comparative advantages when a path of productivity growth is taking place.
General support could be found, among others, in the learning mechanisms, production
organization and product quality improvements. Second, a country efforts to increase its
participation with “new” commodities in the world market are mainly embodied in the changes
of NIS-competencies addressed to support innovation and its diffusion.

Figure 3: NIS-competencies and specialisation

π=(NIS, Competences, z)
π

Low NIS-competence

⇒ ⇒ High NIS-competence

In figure 4, the interplay between NIS-competencies and catching up process is

graphically represented. Looking at the left side, think of a “NIS-competencies frontier” which
could be identified as the actual created asset that each economy has shown to build-up in order

13
In this case that a similar consumption pattern prevails and production costs are given and fixed in both economies.
14
This figure is obtained from a model with a continuum of goods whereas the dynamics increasing returns are
introduced, see Cimoli, Dosi and Soete (1986) and Krugman (1987).
 11

to support innovation and its diffusion15. Each π-y schedule is build-up on a given NIS-
competencies. The figure tells us that an increase of domestic productivity will lead to a higher
domestic income (with respect the world economy). In other words, a export led growth
16
approach is here assumed .
On the right side of the figure, the growth trajectories are displayed (whereas y
approximate the GDP as a proxy for the scope for catch-up). The export leading growth process
is taking place on a single schedule relating y changes over time. Thus, if our country is behind
the international frontier, a process of catch-up is taking place when its productivity increase
and learning mechanisms (associated to organizational changes, improved adaptation of
17
imported capital goods and quality improvments etc.) in the production activities are obtained .
Two limits are represented when the catching-up path takes place (Y)1and (Y)2 which could be
considered as physiological bottom-up of relative growth possibilities; in partucular, y1
represents the “international frontier” capturing the performance attained by the developed
economies.
Again, on the left side, an successful effort to increase this NIS-competencies asset
would shift upward the schedule π-y. The same could be obtained when the set of institutions,
which jointly and individually contribute to the development and diffusion of new technologies,
improves the transfer and absorption capacity of knowledge flow and, consequently, the
diffusion of the innovation process. Thus, an effort to increase NIS-competencies and improve
its functionality would produce a jump of the schedule y-t reducing the gap from the
international frontier.
In other words, an stronger effort to obtain a functional (well organized) NIS and higher
competencies will lead to an upward shift of the schedules π-y and y ( the income increase from
ya to yc). Thus, a higher participation and higher income with respect to the world economy
could be reached; and, a process of catch-up is taking place reducing the growth gap from the
international frontier.
Most of the effects described before can be neutralized by a higher effort to increase the
NIS-competencies asset and improve its organization in the advanced countries. In this case, a
jump of the international frontier (y1) and an increasing gap from the others growth trajectories
could be obtained . A scenario of stable gap in the growth trajectories in terms of the
international frontier could be viewed as the result of similar efforts in NSI-competencies.

15
From this point of view it clearly results that the SNI-competence assets is gaining an increasing importance on the
explanation of comparative advantages and competitiveness. In a sense, it can be argued that the actual scenario seems to
indicate that at an international context the importance of the “created assets” represented by the interplay between SNI
and competencies described above is growing (created vs natural assets, see Dunning 1995).
16
The size of the domestic market appears to be another crucial competitive factor. In a sense, it can be suggested
that countries with small domestic market are characterized by lower capabilities to develop economies of scale and
technological spillovers. The domestic market and its size, may have important implication when an effort in NIS-
competencies is made. In a sense, this effort can be neutralized when the economy has not reached a necessary
economies of scale to support and gain in terms of international competitiveness. Moreover, if a larger country does a
greater effort in NIS-competencies, the lower cost of innovative activity and larger spillovers could explain
international advantages.See, Fagerberg (1995b).
17
In this context, the introduction of dynamics increasing returns is assumed to explain the interplay between
productivity and income. .
 12

Figure 4 : NIS-competencies and trade growth performances: forging-ahead,

catching-up and falling-behind

y
NIS-competencies side International frontier
Y1

High NIS-competence

Falling-behind
ya

Catching-up
Low NIS-competence (increasing NIS
yb competencies)

Catching-up
Y2 (exploding increasing
returns and
competitiveness)

π πa πb tb ta tc t

The catch-up process introduced here put its emphasis on differences in the scope for
18
export led growth and country’s potentiality to support innovation system . In this sense, two
are the mechanisms introduced and described in figure 4. First, a country could exploit growing
productivity on the basis of improved competitiveness and increased exports. This process is
building-up on a given NIS-competencies framework. Thus, learning mechanisms,
organizational changes and quality improvments in the production activities are the main
sources of catch-up. Second, it can be putt that since the catch-up process is shaped by the
actual NIS-competencies, an effort to increase this asset and improve its functionality would
jump the country’s growth trajectory near the international frontier.
The model sketched above accounts in a relatively straightforward manner for the
following general property: that all effort addressed to improve the functionality of the NIS-
competencies -related to both institutions and resources- by a country could be viewed as a
necessary condition to improve its economic performance. In the same sense one can see that a
catch-up (or forging-ahead) growth traajectory is taking place. Conversely, a falling-behind
trajectory is associated with a NIS-competencies poorly organized and lower efforts to increase
this asset.
A few examples of how the system functions are provided by the historical case studies
discussed by Dosi, Pavitt and Soete (1990), showing the mechanisms through which the NIS, by
fostering R&D, has been enhancing the competencies of firms and industries, finally inducing
18
Most of the works on catch-up put the emphasis on the scope for imitation (Gomulka (1971), Abramovith (1979,
1994) and Maddison (1991). The scope for imitation here is considered as a feature of both comppettitvenes -
organizational and quality improvements- and NIS-competencies efforts.
 13

an improvement in performances. The same type of relationship is also confirmed by the case
studies recently conducted by OECD, that revealed the extent and types of collaborations
between enterprises and the public sector research base (formal collaborations -such as
commissioned research, joint R&D projects, co-patenting and co-publications-, informal
transaction -informal contacts and use of published scientific knowledge-, spin-offs from
universities, and transfer of technology to enterprises -patents and product developments-). At a
more specific level, and in particular by focusing on the educational policy, another example of
the relationship running through the NIS to enhanced competence and better performance is
provided by the analysis of the Taiwanese experience supplied by Nelson (1993) and Della
Giusta (1996).
In Germany, Japan and Sweden it has been often observed that, at least in most of the
post-war period, education and training systems have been particularly efficient in providing
people with the requested standards in terms of knowledge and skills. University and
government laboratories can therefore be considered as an important source for technological
capabilities for the firms. In this respect, one can also mention the cases of Korea and Taiwan,
emerging countries where it seems that education-led growth contributed to shift international
specialization from standard product to much more sophisticated ones, gradually characterized
by a higher content of technological complexity.
In other words, a specialization increasingly oriented towards innovative commodities
has been often supported and associated, particularly to the successful story cases, by long-term
planning initiatives and public investments in “human capital” . While - as a counterfactual
example - in the case of Argentine and Brazil it seems that the weak links between Science and
Education systems and the industrial and R&D system contribute to explaining weak
competitive performances. Taking into account this institutional supportive environment
reduces at least in part the serious analytical and empirical difficulties that the scholars have
faced in explaining within an incrementalist perspective the incredibly fast technological
learning trajectories experienced by some Far Eastern firms (Freeman 1987, Amsden 1989,
Canuto 1994 , Hobday 1995).
Moreover, taking this analysis to its logical extreme, one might say that the international
performance can be obtained only according to the differences of NIS-competence displayed in
each economy. Thus, international competition could be based on a “protected piece of the NIS-
competencies”, or on industries supported by government policies in terms of resources for
science and technology development. Such has been the case for Korean chaebols as well as for
the American computer, software and semiconductor industries, supported by research
resources from the Department of Defence (Nelson 1993, Genthon 1995).
However, in this context, as it happens when one refers to the explanation of the interplay
between science and innovation, even the relationship between NIS-competence and performance
is neither linear nor deterministic in character.
In particular, when one thinks of other variables and relationships captured within the
interplay between specialization pattern and constraints imposed by trade balance conditions, the
policies related to the macroeconomic setting and the exchange rate some of the results presented
19
above could be modified obtaining paradoxical scenarios . Putting this observation into the
above picture, one can identify different cases. For example, on the grounds of this context, the
interplay that exists between dynamic endogenous changes of comparative advantages and
national consumption patterns for the determination of differences in relative incomes and
growth possibilities has been explicitly emphasised. National consumption patterns are
determined by a mix average of income and price elasticities for a pattern of endogenously-

19
To some extent this approach has to be resembled introducing the kind of results obtained in the trade-growth analysis
(from others: Dosi, Pavitt and Soete (1990), Cimoli and Soete (1992) Cimoli (1994), Fagerberg (1988, 1995a)).
 14

determined specialization which are explicitly related by the constrain resulting form the
external account.
By explicitly incorporating these analysis a paradoxical result can be obtained
associated to the perspective of falling behind or forging ahead as the technological learning and
accumulation for the sectoral activities interact with the national consumption patterns which
20
are asymmetrical at national level . Think at the cases where specialization is mainly oriented to
those sectors characterized by higher or lower rates of growth in world exports. Moreover, and
as emphasised in much of the trade and development literature, the effect of the asymmetry on
import demand is associated to the "type" and the income elasticities of the commodities
produced and exported in both countries (one may think here of the case of primary and
manufactured commodities or the different income elasticities associated to low and high tech
products).
If a country shows high dynamics of increasing returns and learning capabilities in the
sectors where the consumption pattern is not favourable, it may result in a process of falling
behind. In the case of low dynamics of increasing returns and a favourable consumption pattern,
a country may find a process of catching up or forging ahead. Thus, the possibility of forging
ahead and catching-up are guaranteed when the learning capabilities are distributed in those
activities associated to a favourable world consumption pattern.
In so far as distribution (changes in wages and productivities and wage-labour nexus
prevailing in each economy) have also an impact on the trade performance most of the NIS
effect described above can be neutralized. Take an extreme analysis that within each country
could prevail an oligopolistic (where the wage-labour nexus is characterized by tacit or statutory
mechanisms of strong indexation of wages to labour productivity) or a classical form of
regulation (where the wage-labour nexus is determined by a weak indexation of wage to
productivity). Of course, in practice , these are two extreme archetypes but most of the effects
described above on the SNI-competence can be neutralized by the interaction of different
dynamics in distribution variables which could move in favour or to the detriment of the
21
domestic country . What emerges, in other words, is that the traditional income growth effects
due to relative changes in prices and wages and differences in the demand structure are not so
clear (let alone obvious). Thus these situation can clearly lead at the situations whereas the
celebrated case of immiserizing growth and Prebisch-Singer thesis could be prevail.
Another aspect which could clearly neutralise the effects of SNI-competencies is
related to the cases where the macroeconomic setting is characterized by high instability
frequently emerging in the vicious circle of depreciation-appreciation of the exchange rate. This
scenario characterise most of the semi-industrialised economies in Latin America (Argentina,
Brazil and Mexico), and, particularly, the main economic actors involved in the process of the
acquisition and diffusion of innovation do not take any decision involving a “long term
perspective” because their strategies are “take care, wait and see how the exchange rate will
move”. In a sense, efforts oriented to the increasing on NIS-competencies could be neutralized
by a macro-setting characterized by high instability.
However, when an stable macroeconomic setting prevails , the delinking of the
exchange rate from the real economy (trade and specialization) is concerned with the existing
differences in NIS-competencies and its evolution over time. A high delinking is related to large
differences in the NIS-competence. A similar case emerges when dedicated efforts arise in the

20
Thus, sectoral distribution of specialization can determine a divergence between the production and consumption
pattern at national level. In this context, as introduced in Pasinetti (1981), the asymmetry in the domestic and foreign
consumption pattern is considered as a key element in the explanation of the convergence vs. divergence in the output
rate of growth.
21
These empirical archetypes of the institutions governing the labour market are deply analysed in the theory of
regulation developed in Boyer (1988a), (1988b).
 15

leader innovating countries and a process of forging ahead or falling behind is taking place;
conversely, a large sensitivity occurs when countries are characterized by small differences in
this created assets and a process of catching-up is resulting. In a sense, what paradoxically takes
place is that the actual effects of the exchange rate on trade flows and specialization is closely
linked, given a stable macoreconomic setting, to the differences in SNI-competence assets.

5. Conclusions
The purpose of this note was to discuss the empirical and analytical features that support
NIS analysis for the understanding of its implication on the sources of technological asymmetries
and growth which show different performances across countries.
The importance of the institutional dimension for the understanding of technological
asymmetries should come as no surprise, supported by a growing evidence from the neo-
Schumpeterian trade and growth approaches. After all, at the micro level, technologies are to a fair
extent incorporated in particular institutions, the firms, whose characteristics, decision rules,
capabilities, and behaviours are fundamental in shaping the rates and directions of technological
advance. In turn, firms are embedded in rich networks of relations with each other and with other
institutional actors- ranging from government agencies to universities etc.. Moreover, a major
element linking microeconomic learning with national patterns of development is the
embeddedness of the thread of incentives, constraints, and forms of corporate organization into the
broader institutional framework of the political economy of each country.
NIS could be considered as an useful concept whereas the countries asymmetries in
institutions, linkages, sectoral patterns of diffusion and production of innovation are captured.
Moreover, I would want to press this point to a more economic view of NIS whereas the linkages
with country’s growth performances should be internalised. Two are the main reasons that support
this view.
First, I asserted that the NIS view could increase its significance when its meaningful will
is addressed to recover some economic patterns regarding specificities of the economies interested
to a catching-up process. Examples, among others, include the strategies to promote
industrialization -export led growth vs inward oriented strategies- and technological capabilities -
building-up a consistent NIS with increasing effort to improve its functionality-, the main features
of macroeconomic setting, the exchange rate policy and the actual specialization. Moreover, export
led growth mechanisms -based on learning and organizational changes in the production
activities- and stronger effort to obtain a functional (well organized) NIS and higher
competencies will lead to an upward shift of the growth trajectory and a catch-up process.
Second, the emphasis on NIS and its interplay with trade-growth approaches tends to up-
play the understanding that can be made around further empirical works and appreciative theorising
on this topic. Going back to the particular type of NIS representation introduced here, it is very
important to underline that this representation is oriented to capture the functional relationships
among variables, and it is essentially to the estimation and description of these relationships,
rather than to that of the coefficients of the individual variables involved, that attention should
be devoted. The idea is related to the identification of specific linkages that relate macro-
setting, institutions, competencies and performances applying a different methodological
analysis, which moves from the evidence contained in the historical case studies to the
graphical exercises introduced in the above sections. It is important to bear in mind that within
this context the representation proposed here can be considered as an experimental approach
where the relationships of a certain kind between technical change and economic performance
are being analysed from a different perspective. Thus, for example, on the one hand, the
 16

intuitive hypothesis that improvements in the efficiency of techniques of production or in

product performances may be a determinant, or at least a binding precondition, of growth in per
capita income and consumption should be more extensively investigated. On the other hand, in a
dynamic perspective, we can introduce the debate about the question on whether institutions and
competencies supporting technical change are sufficiently adaptive to adjust to whatever
underlying economic change emerges from market interactions, or conversely, whether they are
inertial enough to shape the rate of direction of innovation and economic performance. In a
broad sense, the idea proposed here is aimed at maintaining the concept of NIS anchored at a
“macro-technological and institutional” container which enables an evaluation of innovative
efforts and economic performance.
 17

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