Notes Introduction 1 . Some passages of this thesis – exclusively written by the author – have been used in Gugler et al. (2011). This conference paper was presented – and never published – at the 2011 meeting of the Academy of International Business (AIB) in Nagoya (Japan) in order to obtain feedback to improve the quality of this research. 1 Preamble to the Study of Innovation 1 . Schumpeter’s groundbreaking contribution to bringing innovation into main- stream economics will be investigated in more detail in Chapter 2. 2 . A qualitative distinction between the first innovation and its subsequent introduction(s) in new contexts may nevertheless be discussed. 3 . Although innovation could once have been reduced to the simple satisfaction of human needs, it is at best no more than a half-truth (Williams, 2000, p. 8). As put forward in some detail in Chapter 2, it is now well established in the literature that innovation is crucial for economies as they approach the frontiers of knowledge and the possibility of integrating and adapting exogenous technologies tends to disappear (Aghion and Howitt, 1992; Grossman and Helpman, 1991a, b; Lucas, 1988; Romer, 1990). For innovation-driven economies adopting existing technolo- gies is no longer sufficient to increase productivity and, in the long run, innova- tion is the only means to expand standards of living (Sala-I-Martin et al., 2009, p. 7). Innovation is therefore no longer a simple means to satisfy a need but rather a sine qua non condition to maintain a competitive edge. 4 . As the term “innovation” is often associated with closely related notions such as intellectual property, invention, patent, R&D, science, technical progress or tech- nology, Appendix 1 provides a brief glossary of these concepts. Some of these notions will naturally receive greater attention within this text as they are at the core of this research. 5 . The notion of patent will be analyzed in detail in Chapter 3. 6 . Similarly, many inventions in the automotive industry (such as the electric car, the solar car or the hydrogen engine) seem to take a disproportionately long time to enter the market because they are being purposefully delayed by the oil and auto- motive industry lobbies. 7 . Other examples of radical innovations are those which make a particular tech- nology or know-how obsolete overnight. The development of digital printing and digital photography has, for instance, particularly challenged the offset printing industry and the photographic film industry (think about Kodak’s struggle to tran- sition towards digital technologies). 8 . The term “product” is used to cover both goods and services. 9 . For more detail about the definitions of the different types of innovation, please refer to the OECD (2005). 236 Notes 237 10 . Not to be confused with Vernon’s famous product life-cycle theory (Vernon, 1966). Although related, Vernon’s theory did not intend to develop a theory of technological evolution per se but an explanation of foreign production and FDI activity. 11 . The SPRU innovations database lists significant technological innovations intro- duced into the United Kingdom. It was developed by the Science Policy Research Unit (SPRU) at the University of Sussex, UK. 12 . A good literature review on organizational innovation has been provided by Lam (2005). 13 . Statistics on R&D are collected on the basis of the standard established by the OECD Frascati Manual (2002, p. 30): “ R&D comprise creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications .” 14 . The Patent Cooperation Treaty (PCT) provides the facility to seek patent rights in a large number of countries by filing a single international application with a single patent office. In other words, PCT patents can be seen as a “worldwide patent application” (OECD, 2009b, p. 64). 15 . The role of universities and other institutes of higher learning in the innova- tion process must nevertheless not be underestimated. They play a key role in science – defined as “the unfettered search for knowledge for the sake of understanding ” (Feldman, 2004, p. 5) – which can be the source of many innovations. Moreover, without specific government incentives, private firms are less likely to engage in basic research due to its very uncertainty and the unpredictable returns on invest- ment (Feldman, 2004, p. 5ss). 16 . Copyright requirements did not permit to reproduce the value chain model in multiple sections of this book. 2 Innovation and Economic Performance 1 . The dynamics of the system described by Smith and Ricardo can be summarized as follows: capital accumulation leads to an increase in work demand which transiently causes an upward pressure on wages until demography picks up. A larger pool of workers brings about a larger demand for grains thus inducing the cultivation of less productive lands, generating a rise in grain price, land income and nominal wages (minimum living wage). Wages and land income grow at the expense of profit, which decreases until no further investment is undertaken. The cessation of capital accumulation stops the demographic growth and leads to a stabilization of the whole economic system, defined as the stationary state (Guellec and Ralle, 2003, p. 27–28). 2 . It is worth noting that Smith was not the first thinker to stress the benefits of the division of labor. In his book on the history of economic thought, Friboulet (2009, p. 43) reported that Plato, Aristotle, Hutcheson and Mandeville already recognized, to some extent, the virtues of the division of labor. 3 . Economic evolution was described by Schumpeter as “ the changes in the economic process brought about by innovation, together with all their effects, and the response to them by the economic system ” (Schumpeter, 1939, vol. I, p. 86). 4 . For detailed information on Marx’s works, please refer to the three volumes of his book “ Capital: A Critique of Political Economy ” (Marx, 1954/1956/1959). 238 Notes 5 . As noted by Schumpeter (1939, p. 103–104): “ The failure ... to visualize clearly entre- preneurial activity as a distinct function sui generis, is the common fault of both the economic and the sociological analysis of the classic and of Karl Marx .” 6 . It is worth noting that the notion of “cluster” used by Schumpeter refers more to a series of innovations (geographically concentrated or not), triggered by an important discovery (such as the invention of the Internet, which has generated a wide array of inventions and innovations in many different fields), rather than the concept of “cluster” popularized by Porter (1990, 1994) to reflect the benefits of agglomeration. Although related, the notion of “cluster” used by Schumpeter is distinct from Porter’s concept of “cluster” central to this thesis and rooted in the works of Marshall (1890/1916) and early economic geographers such as von Thünen (1826), Weber (1909/1929) or Hotelling (1929) (cf. Chapter 5). 7 . Maddison (2001) provided a rich analysis reviewing the major stylized facts about growth. 8 . It is worth noting that there had been attempts to model the growth process since the late 1930s. However, technological change was not integrated as a poten- tial factor of sustained growth in the long run. The Keynesian growth model of Domar (1947) and Harrod (1948) is particularly representative. Economic growth was explained in terms of productivity of capital and intensity of saving (Lecaillon et al., 2008, p. 232ss.). According to these authors, a balanced growth of the economy was unlikely to be reached as it implied a parallel increase in the rate of investment and of the ratio between the share of savings and the produc- tivity of capital (Lecaillon et al., 2008, p. 233). Although Harrod and Domar were very pessimistic about the possibility of a lasting growth in the long term, they developed a production function in which output ( Y ) was a function of capital ( K ), which set the foundation of subsequent exogenous and endogenous growth models (Guellec and Ralle, 2003, p. 30). 9 . K encompassed both human and physical capital. 10 . The marginal product F '( k ) is positive but diminishes as K increases because of the decreasing marginal productivity of capital. 11 . It is worth noting that post Second World War growth models (Domar, 1947; Harrod, 1948) and the Cobb-Douglas function (Cobb and Douglas, 1928; Douglas, 1976) (explaining growth of production (output) as a function of two factors (capital and labor raised to the power α and β –constant values representing capital and labor elasticity, determined by available technology) and a factor A capturing total factor productivity (or the non-explained share of productivity growth – implicitly technological progress) have been particularly popular among scholars and business cycle research institutes to evaluate and forecast production’s poten- tial growth rate (OECD, 2012b). For instance, in Switzerland the explanation of growth has long relied on a Cobb-Douglas framework (i.a. IMF, 2005; Minsch and Sturm, 2011). 12 . Please refer to Jones and Manuelli (2005) for a synthetic presentation of neoclas- sical models of growth. 13 . AK models have been named after the production function they rely on. As emphasized in equation (1), output in AK models is a function of a fixed coef- ficient “A” and capital “K”. 14 . Landes (1998) estimated that while the divergence in productivity and income per capita between the richest and the poorest country in the world 250 years ago was approximately 5:1, this ratio has increased roughly to 400:1 today. 15 . A good literature review has been provided by Pianta (2005). Notes 239 16 . Literature reviews have been provided by Petit (1995), Chennells and Van Reenen (1999) or Spiezia and Vivarelli (2002).
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