Competitiveness and
National Innovation Systems
Dr. Lisa De Propris
Birmingham Business School
Institute for Economic Development Policy
Content
Link between competitiveness and innovation
 Measures and indexes
 Cross-country rankings
 National innovation system
 Policies

Definition EU
“Ability of the economy to provide its population with high
and rising standard of living and high rates of employment
on a sustainable basis.”
European Commission, 2002:2
Knowledge + Innovation
Productivity
Competitiveness
“knowledge, innovation and entrepreneurship as key
factors affecting industrial competitiveness”
EC, Competitiveness 2003
Definition OECD
Competitiveness is the degree to which a country can
“under free and fair market conditions, produce
goods and services which meet the test of
international markets, while simultaneously
maintaining and expanding real incomes of its
people in the long run”
(OECD, Technology and the Economy: The Key Relationship, 1992)
Definition WEF
“competitiveness is defined as that collection of
factors, policies and institutions which
determine the level of productivity of a country
and that, therefore, determine the level of
prosperity that can be attained by an economy”
(WEF, 2005:xiii)
Definitions
“true competitiveness is measured by
productivity”.
(DTI-UK, 2003:7)
“national competitiveness is the capacity to
increase the real income of all Americans by
producing high-value products and services that
meet the test of world markets”
(Council on Competitiveness-US, 2001)
Absolute, comparative & competitive
advantages

Absolute advantages: specialisation in the production of
goods one country can produce more efficiently that any other

Comparative advantages: specialisation in the
production of goods for which a country has the greatest
relative advantage

Competitive advantages: (Porter’s diamond), cost
advantage and differentiation advantages
Measures of competitiveness
Trade = real exchange rate = exports
 Productivity (labour, capital total factor)
 GDP per capita- income
 Composite indexes of e.g. innovation, human capital

World Economic Forum
The Global Competitive Report 2005-06
Growth Competitiveness IndexMacro-economy
Public institutions
Tech & Innovation
Policies
Regulatory framework
Global Competitiveness Index
1.
Institutions
2.
Infrastructure
3.
Macro-economy
4.
Health and primary education
5.
Higher education and training
6.
Market efficiency
7.
Technology readiness
8.
Business environment
9.
Innovation
Gross Domestic Expenditure on R&D as % of GDP, 2001
Sweden
Finland
Germany
Denmark
France
Belgium
Austria
United Kingdom
Netherlands
Luxembourg
Slovenia
Czech Rep.
Ireland
Italy
Hungary
Spain
Portugal
Estonia
Lithuania
Slovakia
Polonia
Greece
Bulgaria
Latvia
Romania
Cyprus
EU15
0
0.5
1
1.5
2
2.5
GERD as a percentage of GDP
3
3.5
4
4.5
UNIDO, Industrial Development Report 2002-03
UNIDO, Industrial Development Report 2002-03
National Innovation Systems
“ set of interrelated agents, institutions and practices
that constitute, perform and participate in relevant
ways in the process of technological innovation”
Firms do not innovate in isolation
A country’s technology and innovation capability
determines its competitiveness
Local-regional-national systems of innovation are
connected
NIS are not closed system
National Innovation Systems
National
coordination policy/instruments, service provision, funding, setting up the legal
framework
Innovation
incremental/radical innovations;
new to firms/new to markets
System



innovation is a process involving firms and institutions/organisation
Linkages (cooperation, production exchanges)
Knowledge flows
Measures: formal and informal cooperation over R&D, stock of research institutions,
channels of dissemination and technology transfer, R&D expenditure, R&D
performance, human capital
National Innovation Policy





Link universities/public labs and businesses especially for
science-based industries
Encouraging cooperation over innovation
Finance (venture capital, risk-taking banks)
Military spending in R&D and procurement
National programme in high tech sectors
HOWEVER,
– Picking sectors  winners
– Duplication of efforts
– Competition for resources (EU-wide science and
research programme)
Finland

Top Growth Competitiveness Index ranking 2005
 Is it only for Nokia? NO
Nokia grew in a innovative environment  Finnish innovation system
INSTITUTIONAL FRAMEWORK
 21 universities
 16 knowledge centre (EU sponsored)
 Tech Development Centre
 Tech Research Centre of F.
 National cluster programmes coordinated across 5 ministries
FUNDING
 Finnish national fund for R&D (sponsors regional tech centres and
arranges venture capital funds)
 Regional development fund
NETWORKING
 Across national agencies
 Across national and regional agencies
 Between agencies and businesses (including
start-up firms)
There exists a global communications technology
industry Trans-national innovation system
(linkages, cooperations, sub-contracting, inoutwards FDI
Finnish institutional framework
Reading List
M. Balzat and H. Hanusch (2004) Recent Trends in the Research on National Innovation
Systems, Journal of Evolutionary Economics, Vol. 14.
EC (2005) EU Sectorial Competitiveness, Luxemburg, Official Publication of the European
Communities.
EC (2003) Competitiveness: Internal market, industry and research, (document 9039/03)
http://ue.eu.int
EC (2004) European Competitiveness Report 2004, Luxemburg, Official Publication of the
European Communities. R.R. Nelson (1993) National innovation systems, OUP, Oxford.
Interamerican Development Bank (2001) The Innovation Systems of Latin America
and the Caribbean, Working paper #460
Oinas P. (2005) “Finland: a Success Story?” European Planning Studies, 13/8
Porter M.E., K. Schwab and A. Lopez-Claros (2005) The Global Competitiveness Report 200505, World Economic Forum www.weforum.org
Porter M. (1990) The competitive advantage of nations, London, Macmillan.
Porter M. (1985) Competitive Advantage, London, Free Press.
Porter M.E. and H.M. Ketels (2003) UK Competitiveness: Moving to the Next Stage, DTI
Economic Paper No. 3, Department of Trade and Industry
World Bank, 2002, Building Competitive Firms: Incentives and Capabilities (www.worldbank.org)
World Economic Forum (2002) The Latin American Competitiveness Report 2001-02, Oxford
University Press