Challenges of African Transformation: Exploring Through Innovation Approach

Chapter 8 - Are North–South Technological Spillovers Substantial?

149 AreNorth–SouthTechnologicalSpilloversSubstantial? Adynamicpaneldatamodelestimation Watu Wamae SUMMARY This article argues that actual technological spillovers are not substantial in developing countries because of the weak absorptive capacities. A panel data analysis is used in an attempt to gain insight into the specific aspects that enable economies to benefit from the backlog of existing knowledge. The findings indicate that low productivity effects of human capital coupled with weak or virtually non-existent systems of innovation are at the root of the observed ambiguity with regard to the spillover gains that are expected to play a significant role in sparking growth. INTRODUCTION Among developing countries, there is a growing rift between the few economies that have managed to ‘take-off’ and the overwhelming majority that is increasingly being marginalised by the current economic trend of rapid transformations. From a more general perspective, there is a great deal of evidence against the inevitable convergence predicted by earlier models, such as Solow (1956). Temple (1999:151) points out that, ‘Poor countries are not catching up with the rich, and to some extent the international income distribution is becoming polarized.’ This situation has arisen with technology taking the centre stage in driving economies and modifying dynamics in the global economy. The question addressed in this paper is: What lies behind the ability of a handful of developing countries to catch up with industrialised countries while the vast majority recedes further into marginalisation? Technology-led growth is characterised by rapid changes, due to pressure from such factors as rapid technical change and liberalisation, and CHAPTER 8 150 evidence suggests that the returns to human capital are increasing, resulting in skill-biased technical change. However, the primary focus of classical , neoclassical and endogenous growth theory remains the allocation of scarce resources; structural feedback mechanisms that determine the dynamism of linkages and synergies in a rapidly changing environment are not taken into account. The national systems of innovation is an alternative approach proposed within the evolutionary technical change framework. Pioneered and elaborated by Nelson and Winter (1982), Rosenberg (1983), Freeman (1987) among others, the national systems of innovation approach emphasises that the innovation process is a process of interactive learning in which actors improve their competences.1 The endogenous structural, institutional and social factors, which constitute the so-called technological gap, have been stressed within the systems of innovation approach as largely responsible for driving economies apart. The underlying fact is that rapid economic transformations render competence acquisition increasingly tacit, and hence the importance of an adequate system of networks and linkages between and among actors and institutions. This article attempts to show how the wide divergence among economies is mirrored by the rate of growth of knowledge, and that it reflects structural, institutional and social factors. More specifically, it is argued that domestic innovation in developing countries is a vital source of sustainable growth despite the popular view that importing high technology equipment is the best way or even the only way to ignite growth in developing countries, and especially in the poorest, since they seldom invest in domestic R&D and innovation systems. Domestic innovation creates domestic technological capacities and capabilities. This increases the potential for technical progress through the interdependent process of domestic knowledge creation and the development of an absorptive capacity: the economic dynamism created by local innovation forms the basis for knowledge assimilation without which foreign technology cannot be absorbed and successful take-off that leads to catching up cannot take place. The argument is supported by the observations made by economists of technical change regarding the dual role of innovative activities. For example, Cohen and Levinthal (1989:569) argue that ‘while R&D obviously generates innovations, it also develops the firm’s ability to identify, assimilate , and exploit knowledge from the environment.’ They further qualify this argument and postulate that ‘firms may conduct basic research less for particular results than to be able to provide themselves with the general background knowledge that would permit them to exploit rapidly useful scientific and technological knowledge…’, Cohen and Levinthal (1990:148). Basic research broadens the knowledge base to create a critical overlap with new knowledge. In a similar vein, Abramovitz (1986) suggests that CHAPTER 8 151 ARE NORTH–SOUTH TECHNOLOGICAL SPILLOVERS SUBSTANTIAL? technical congruence is one of the elements that supports the capacity of followers to exploit existing knowledge. Foreign R&D is often considered as the main means of acquiring technology , and an analysis of north-south spillovers...