Innovation Economics
Class 1
Importance of Science and
Technology
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Rate of economic growth and innovation
Economists have recognized the central importance of
technological innovation for economic progress
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Adam Smith “Wealth of Nations”
Marx’s model of capitalist economy
Marshall considers knowledge as chief engine in progress
Earlier neglect of invention and innovation in the
economic models. Treat innovation as exogenous.
Economic growth problems treated technology as
constant.
The Research and Development
System
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Research system
Government and university, firms.
1870s: First specialized labs
Schumpeter’s distnction between innovation and
invention
Invention: New idea, sketch, model for a new and
improved device.
Innovation: The whole process of developing a new
product. Product innovation and process innovation.
THE GLOBAL COMPETITIVENESS REPORT
Growth Competitiveness Index
Technology Index
Macroeconomic
Environment Index
Public Institutions
Index
Innovation Sub-Index
Macroeconomic
Stability Sub-Index
Contracts and
Law Sub-Index
Technology
Transfer Sub-Index
Country Credit
Rating
Corruption SubIndex
Information &
Communications
Technology Sub-Index
Government
Waste
Kaynak: WEF, 2003
THE GLOBAL COMPETITIVENESS REPORT
Business Competitiveness Index
Factor (Input)
Conditions
Company Operations
& Strategy
Demand Conditions
Related and
Supporting Industries
Context for Firm
Strategy and Rivalry
Kaynak: WEF, 2003
Business Competitiveness
Rank
Kaynak: WEF, 2003
Türkiye (65,52)
Growth Competitiveness
Turkey’s Position in Global
Competitiveness
Kaynak: IMD
COMPETITIVE INDUSTRIAL
PERFORMANCE INDEX
70
65
61
60
50 50
50
40
37
30
20
10
49
33
28
27
29
23
22
18
36 38
35
19
15
6
C
hi
na
Br
a
M zil
ex
ic
o
So I
u t nd
h ia
K
Ar ore
ge a
nt
in
Ta a
iw
In an
do
ne
s
Tu i a
Si rke
ng y
ap
or
e
0
Kaynak: UNIDO
Rank 1985
1
Rank 1998
-2%
Kaynak: US National Science Board
68 68
countries
ÜLKE
Total
ÜLKELER
tota
GELİŞEN
Developing
16%
SANAYİLEŞMİ
Industrialized
Ş ÜLKELER
Argentina
ARJANTİN
HHONG
Kong
KONG
MEKSİKA
Mexico
Brazil
BREZİLYA
Singapore
SİNGAPU
R
ÇİN
China
KORE
Korea
Taiwan
TAYVAN
France
FRANSA
Germany
ALMANYA
İNGİLTERE
UK
Japan
JAPONY
A
USA
ABD
Growth Rates: High Technology and Total Manufacturing
(1980-1998)
Hihgh
Hi-tech
tech.
14%
12%
10%
8%
6%
4%
2%
0%
Manufacturing Value Added
Figure
Shares of global
MVAAdded
(%)
Share
of 4.2:
Manufacturing
Value
(%)
80
70
60
50
40
30
20
10
0
1980
Kaynak: UNIDO
1985
Sanayileşmiş
1990
Gelişen
1995
Geçiş
2000
Growth Rate of Manufacturing Value
Added (1980-2000)
Growth rates of manufacturing value added, 1980-2000
8%
7%
6%
5%
4%
3%
2%
1%
0%
Resource Based
UNIDO
Low tech
Med. / High Tech
Business Competitiveness index (2001)
Kaynak: WEF, 2003
National Innovation Capacity Index (2001)
GDP Per Capita (2001) (PPP)
Kaynak: WEF, 2003
National Innovation Capacity Index (2001)
Tecnnological Innovation in the
Manufacturing Sector
Percentage of technological innovation in manufacturing sector
30
29
28
27
29,4
26
25
24
23
22
24,6
1995-1997
Kaynak: DİE, İmalat Sanayii Teknolojik Yenilik Anketi Sonuçları, Ankara,2004.
1998-2000
Types of Technological
Innovation
Type of Technological Innovation
35,8
36,4
Process Innovation
1997
20,1
Product Innovation
26,3
Both product and process
innovation
Kaynak: DİE, İmalat Sanayii Teknolojik Yenilik Anketi Sonuçları, Ankara,2004.
2000
44,1
37,3
Types of Innovative Activities
26,1
16,1
20,2
20,7
16,9
Application of new or changed common strategies
Application of advanced managerial techniques
Application of new and changed organizational structures
Changing market concepts and strategies
Changing design or aesthetic view of at least one product
Kaynak: DİE, İmalat Sanayii Teknolojik Yenilik Anketi Sonuçları, Ankara,2004.
Collabortion / Knowledge Sharing
National
52,3
62,2
European Community
USA
Japan
Other
17,2
33,7
8,8
7,6
15,9
12,2
Kaynak: DİE, İmalat Sanayii Teknolojik Yenilik Anketi Sonuçları, Ankara,2004.
89,0
83,7
2000
1997
R&D Intensity
ARGE Yatırımları / GSMH
ABD
2,70%
Kore
2,68%
Almanya
2,48%
Fransa
2,15%
İngiltere
1,86%
Çek Cumhuriyeti
1,25%
İtalya
1,04%
İspanya
0,94%
Macaristan
0,81%
Portekiz
0,75%
Polonya
0,70%
Slovakya
0,69%
Türkiye
Meksika
0,00%
0,64%
0,40%
0,50%
1,00%
1,50%
2,00%
2,50%
3,00%
Avrupa Birliği 1,88%
Kaynak: OECD in Figures 2002 Report
OECD
2,24%
Private R&D Expenditures Per
Capita (Country Rank)
50
46
46 44
45
46
45
41
41
40 37
36
34
35 32
31
28
30
27
23
25
19
20
20
1416
13
15
10
5
0
ey pore iwan ti na esi a orea Indi a x ic o raz il hi na
k
r
n
B
C
Tu i nga
Me
Ta rge ndon th K
A
I
u
S
So
Kaynak: UNIDO
1985
1998
Share of Capital Investment in
GDP
30
25
20
15
10
5
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
Kaynak: DİE
Kaynak: G. Ulusoy. GÜNÜMÜZ TÜRKİYE EKONOMİSİNDE ENDÜSTRİ MÜHENDİSLİĞİNİN YERİ,
Sabanncı Üniversitesi.
2002
2003
FDI Flows
Professionalization of R&D is
Associated With
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1. Increasing scientific character of technology
2. Growing complexity of technology
3. General trend towards division of labor
Long Waves or Cycles
1780-1840: Industrial revolution
 1840-1890: Age of steam power and railways
 1890-1940: Age of electricity and steel
 1940-1990: Age of mass production
 1990 : Age of microelectronic and computer
networks
Successive industrial revolutions were based on the
qualitative transformation of the economy by new
technologies, rather than the simple quantitative growth
of individual industries.
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Elements of the Innovation Process
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Basic research
Applied research
R&D
Stages in the Innovation Process
Invention
 Innovation
 Imitation
Science push or market driven innovation
Links, chains and feedbacks.
Set of linked activities which may occur in a
variety of sequences and sometimes
simultaneously. Activities are linked.
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Recognizing the importance of science and
technology for economic development..
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Francis Bacon (1620): Printing, gunpowder and the compass
‘have changed the whole face and state of things throughout the
world…’
Adam Smith (1776): ‘Improvements in machinery’ go hand in
hand with the division of labour, and ‘very pretty machines . . .
Facilitate and quicken production…
Karl Marx (1848): ‘The bourgeoisie cannot exist without
constantly revolutionizing the means of production’!
Alfred Marshall (1897): ‘Knowledge’ is the chief engine of
progress in the economy
Joseph Schumpeter (1911): The entrepreneur and his search for
‘new combinations’ is the driving force in all economic
development…
Freeman & Soete (1997): ‘In the most fundamental sense the
winning of new knowledge is the basis of human civilization’…
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• So, no one doubts that innovation is crucial for
our modern economies...
• ... but how can innovation be ’analysed’...
• ... and how can it be ’managed’?
Economics of change...
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• ’Production capacity’ = capital goods,
knowledge and labour skills to PRODUCE
• ’Technological (innovative) capabilities’ =
skills, knowledge and institutions that make it
possible to generate and manage CHANGE in
technology (Bell & Pavitt 1997)
Invention and Innovation
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Schumpeter’s distinction between ”Invention” and
”innovation”
• An ’invention’ is an idea, a sketch or model for a new
or improved device, product, process or system. It has
not yet entered to economic system, and most
inventions never do so.
• An ’innovation’ is accomplished only with the first
commercial transaction involving the new product,
process, system or device. It is part of the economic
system.
What type of innovation?
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• ”product innovation” vs. ”process innovation”
• ”goods” vs. ”services”
• ”technological” vs. ”organizational” innovation
• ”incremental” vs. ”radical” innovation
• (”continuous” vs. ”discontinuous” innovation)
• ”architectural” vs. ”modular” innovation
• ”richness” vs. ”reach”
• ”position” innovation
• ”techno-economic paradigm change”
• etc.
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Changes in techno-economic paradigm
• Industrial revolutions, long waves, technoeconomic
paradigms...
• Freeman & Perez (1988):
– 1780-1840 (early mechanization)
– 1840-1890 (steam power and railways)
– 1890-1940 (electrical and heavy engineering)
– 1940-1990 (fordist mass production)
– 1990-? (information and communication)
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Which type of innovation is most important???
”...it is the perceived degree of novelty which matters;
novelty is very much in the eye of the beholder. For
example, in a giant, technologically advanced
organization like Shell or IBM, advanced networked
information systems are commonplace, but for a small
car dealership or food processor even the use of a
simple PC to connect to the Internet may still represent
a major challenge”!