Using innovation indicators to measure effectiveness of innovation policies Empirical Evidence from Five Type 1 Developing Countries Dr Sunil Mani United.

Using innovation indicators to measure effectiveness of innovation policies

Empirical Evidence from Five Type 1 Developing Countries

Dr Sunil Mani

United Nations University/Institute for New Technologies

Keizer Karelplein 19

6211 TC Maastricht

The Netherlands E-mail: [email protected]

SM: USIS, Paris, March 24 2003 2

Outline

The Context

Renewed debate on innovation policies

Content of Innovation policies

Towards a taxonomy of developing countries according to their potential for

creating new technologies

Measuring policy outcomes- Three conventional indicators

Limitations of the conventional approach

A more systematic approach towards innovation indicators


The Context

Statistically significant reduction in Business Enterprise R&D and the

complementary role of the government investments in R&D

Lack of systematic evidence for globalisation of corporate innovations;

Growing imperfections in the market for disembodied technology transactions;

and

Lack of systematic evidence on positive technology spillovers to host firms from

the operation of MNCs


Statistically significant reductions in business enterprise

R&D

-10

-5

0

5

10

15R

ate

of

Gro

wth

(%

)

USA 5.5 6.7 6.5 9.5 8.8 1.8 1.6 1.4 0.8 3 2.6 -0.8 -4 -0.3 8.1 5 6.4 6.04 6.65

Japan 11 9.3 10.9 9.7 13.2 1.3 6 10.4 11.8 10 2.4 -3.5 -5.9 -1 5.3 0.99 -0.76

OECD 0 6.1 5.8 8.5 10 3.2 3.2 3.9 4.4 0 -1.2 -3.4 0 3.65 5.1

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999


Reduction in government financing of private sector R&D

0

5

10

15

20

25

30

35

Percentage of Business Enterprise R&D Financed by Government

United States 31.6 31.6 31.7 31.3 32.3 31.8 33.4 31.3 28 25.6 22.5 20.8 19.4 18.8 17.8 16.4 15

OECD 22.6 22.8 22.4 22 22.1 21.8 21.9 20.1 17.9 16.7 15 13.6 12.9 12.2 11.6 10.7 0

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997


Complementarity between government investments in

R&D and private sector investments in R&D

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00

50.00R

ate

of

Gro

wth

of

R&

D

Rate of Growth of Federal R&D 22.38 45.60 31.15 17.61 7.42 5.68 14.11 1.52 8.28 2.50 -1.94 -1.79 4.10 -0.37 4.04 9.83 6.13 12.31 17.61 11.92 13.42 2.63 10.60 -6.60 -2.11 -7.16 -6.82 4.53 0.84 1.92

Rate of Growth of Private Sector R&D 6.03 33.21 6.89 9.72 5.42 7.73 8.06 11.27 11.14 10.59 4.37 3.56 13.60 11.93 11.90 10.92 16.25 18.55 13.20 11.18 10.97 5.06 8.58 10.24 11.00 4.20 2.69 11.86 10.41

1954 1956 1957 1959 1960 1962 1963 1965 1966 1968 1969 1971 1972 1974 1975 1977 1978 1980 1981 1983 1984 1986 1987 1989 1990 1992 1993 1995 1996 1998


Lack of evidence of globalisation of corporate innovations

during the 1990s Percentage Share of US

Patents in 1992-96 Nationality

Home Abroad

Percentage

Share of R&D

Expenditure

Abroad

Change in

percentage of

patents abroad

since 1980-84

Japan 97.4 2.6 2.1 (1993) -0.7

US

92.0 8.0 11.9 (1994) 2.2

Europe

77.3 22.7 3.3

Belgium

33.2 66.8 4.9

Netherlands

40.1 59.9 6.6

Switzerland

42.0 58.0 8.2

UK

47.6 52.4 7.6

Sweden

64.0 36.0 21.8 (1995) -5.7

France 65.4 34.6 12.9

Finland 71.2 28.8 24.0(1992) 6.0

Italy 77.9 22.1 7.4

Germany 78.2 21.8 18.0( 1995) 6.4

All Firms 87.4 12.6 11.0 (1997) 2.4


Growing imperfections in the market for disembodied

technology- Evidence i

(1)

Market for

Technology

(Millions of Current

$)

(2)

Rate of Growth of

the Market (%)

(3)

Business Enterprise

R&D (Millions of

Current PPP $)

(4)

Relative Size of the

Market for

Technology

(5 = 2/4*100)

1985-89 27753

1990 24169 -12.91 237603 10.17

1991 41410 71.34 250366 16.54

1992 43571 5.22 256922 16.96

1993 46479 6.67 254090 18.29

1994 51604 11.03 259808 19.86

1995 44469 -13.83 292272 15.21

1996 20761 -53.31 313056 6.63

1997 21956 5.76 NA



technology- Evidence ii

0

5000

10000

15000

20000

25000

30000

35000

40000PaymentsinrespectofTechnologySales(MillionsofUS$)

Receipts 9914 11802 13064 16634 18107 19715 20323 26712 30289 32823 33676

Affiliated 7629 9156 10207 13251 14395 15718 15707 20275 22859 24710 25515

Unaffiliated 2285 2646 2857 3384 3712 3997 4616 6437 7430 8113 8161

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997


Renewed debate on innovation policies

The existence of Spillover gaps

0

10

20

30

40

50

60

70

80

Social and Private Returnsand the Spillover Gap (in per

cent)

Mansfield et al (1977) 56 25 31

Bernstein-Nadiri (1988) 61 18.5 42.5

Goto-Suzuki(1987) 80 26 54

Social Return Private Return Spillover Gap


Renewed debate on the need for clearly articulated

innovation policies According to World Development Report 1998 (WDR) in addition to taking advantage of the large

global stock of knowledge, the developing countries should develop the capability to create knowledge at home. It also acknowledges that 'some types of knowledge must be built from the ground up'. This capability to create knowledge at home must encompass not only strategies to develop knowledge locally but also policies and mechanisms that will eventually enhance the capability of the nation to absorb knowledge. Together these would constitute public innovation policies in the developing-country context. However, the WDR itself does not discuss this in any detail.

Further the recent Human Development Report 2001 of the UNDP also states that the market is a powerful engine of technological progress, but it is not powerful enough to create and diffuse technologies needed to eradicate poverty. Even in the network age, domestic policy still matters. All the countries, even the poorest, need to implement policies that encourage innovation, access and the development of advanced skills;

Most developing countries do not have a policy on innovation, as it is generally believed that developing countries do not engage in any innovative effort at all. At best they are expected to undertake incremental innovations, which are basically the adaptation of imported technologies to local conditions. But the recent growth experience of some of the developing countries and especially those from East Asia shows that they have become generators of new technologies.


Content of innovation policies The basic rationale behind public innovation policies is to combat private

underinvestment in R&D. Following Leyden and Link (1992), the scope of public innovation policies can be divided into:

the creation and maintenance of a legal environment conducive to private sector investment in innovative activities. This is created by legal measures which enhance the power to appropriate the fruits of R&D. Patents and the relaxation of antitrust activity are the primary means by which the government creates such a conducive environment; and

the provision of sufficient stimuli to overcome the natural inclination of private agents to consider only their private benefits when choosing the level of innovative activity in which to engage. This takes a variety of forms ranging from governmental grants and contracts to targeted tax incentives.


Content of innovation policies Type of measure

Relationship with the market Financial measures Non-financial measures

Public provision of goods and

services

1. Subsidising exchange of

R&D personnel between

public and private sectors

2. Policies aimed at diffusion

of technology

3. Human resources

development policy

4. University and government

R&D

5. Industrial standards

Modification of market

incentives

6. Tax incentives for R&D

7. Direct funding through

grants, soft loans, loan

guarantees for R&D projects

8. Promotion of National R&D

projects

9. Joint cooperative R&D

projects between

government and the private

sector

10. Public procurement

11. particularly in defence

12. The intellectual property

right (IPR) regime

13. Industrial and trade policies

Support of the improvement of

market mechanism

14. Creation or improvement of

specialised financial market

mechanisms (e.g., venture

capital)

Source: Own Compilation


Taxonomy of developing countries according to their

potential for creation of new technologies

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

0

1

2

3

4

5

6

7

Group 1 215 254 427 554 750 957 1311 1539 1968 2386 2781 3390 3948 6359 8205 9278

Group 2 214 230 288 300 361 338 349 353 400 430 502 512 544 749 1177 1532

Share of Type 1 world (%) 0.67 0.84 0.98 1.24 1.31 1.63 1.97 2.16 2.64 3.04 3.53 3.86 4.3 5.05 5.55 6.14

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000


Structure and content of innovation policy across Singapore, Malaysia, South Africa, India and Brazil

Fiscal Instruments

Country Tax incentives for R&D Research Grants Government-backed VC Non-fiscal instruments

1. Singapore Double deduction onR&D expenses for both Manufacturing andservices

•Research incentive schemes for companies•Innovation DevelopmentScheme•Funds for industrialclusters•Promising LocalEnterprise Scheme

Techno-entrepreneurshipFund: the governmentlaunched a US$ 1 billioninvestment fund to attractmore VC activities toSingapore

•Strengthening tertiaryeducation in S&T fields at the university andpolytechnic levels•Engineering to local SMEs from FDI•Strengthening thetechnological infrastructure by setting up 13 GRIs in high-tech areas

2. Malaysia Nine different types oftax incentives for R&D

•Industry R&D GrantScheme•Technology AcquisitionFund•Intensification of researchin priority areas•Commercialisation ofR&D Fund•Multimedia Grant Scheme•Demonstrator•Applicants Grant Scheme

No specific Policy on VC industry

Not clearly articulated


Fiscal Instruments

Country Tax incentives for R&D Research Grants Government-backed VC Non-fiscal instruments

3. South Africa Poorly defined taxincentive scheme

•Innovation Fund•Technology and HumanResources for IndustryProgramme (THRIP)•Support Programme forIndustrial Innovation (SPII)•Partnership in IndustrialInnovation

No specific policy on VCindustry

Strengthening tertiaryeducation in S&T fields at the university andpolytechnic levels

4. India Nine different types oftax incentives for R&D

•Programme aimed attechnological self-reliance•Fund for technologydevelopment andapplication•Home grown Technology\Programme•Technology projects onmission mode

•Government-backed VS funds•Reasonably well-articulated publicpolicies for the development ofventure capital



5. Brazil There are five differenttypes of tax incentivesfor R&D

Three different types ofresearch grants and loans administered by two different agencies of thegovernment

The INOVAR project,which is in its initialstages


An ideal sequencing of innovation policy instruments Case of Singapore

i

Innovation Policy

PoliciesforengineeringspilloversfromFDI;

Policiesgoverning theimport of

disembodiedd technology

abroad.

Policies forIndigenisingimported technologiesand local developmentof simple technologies(incrementalinnovations)

Policies for Improving theQuality and Quantity of Human

Resource Toning up primary and

secondary education Improving the quality of

tertiary education andespecially science andengineering

Vocationalising educationby establishing polytechnics

Even allowing themigration of skilledmanpower in selected areaswhere severe shortages arefelt subject to politicalfeasibility

Lead to Creation ofTechno

Entrepreneurs

Policies for Encouraging Smalland Medium enterprises based

on local capital

Various FiscalIncentives:

Research Grants Tax incentives

State sponsored venturecapital



technology- Evidence ii

0

5000

10000

15000

20000

25000

30000

35000

40000PaymentsinrespectofTechnologySales(MillionsofUS$)

Receipts 9914 11802 13064 16634 18107 19715 20323 26712 30289 32823 33676

Affiliated 7629 9156 10207 13251 14395 15718 15707 20275 22859 24710 25515

Unaffiliated 2285 2646 2857 3384 3712 3997 4616 6437 7430 8113 8161

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997


Measuring policy outcomesIndicator 2: Record with respect to patenting

S in g a p o r e M a la y s ia S A fr ic a In d ia B r a z il 1 9 9 4 3 0 (3 0 ) * 5 (0 ) * 3 0 (6 3 ) *1 9 9 5 2 6 (3 8 ) 5 (0 ) 7 4 (2 2 ) * 2 2 (4 5 ) * * 3 5 (3 7 )1 9 9 6 5 4 (3 7 ) 7 (0 ) 6 7 (2 8 ) 2 2 (5 0 ) 3 7 (3 5 )1 9 9 7 5 4 (5 4 ) 1 3 (0 ) 5 4 (2 0 ) 3 8 (6 1 ) 3 0 (5 0 )1 9 9 8 8 0 (5 5 ) 1 4 (0 ) 5 0 (1 2 ) 6 2 (6 3 ) 4 9 (4 7 )1 9 9 9 1 1 2 (5 0 ) 2 0 (0 ) 3 9 (1 0 ) 8 0 (6 9 ) 5 4 (4 4 )

N o te s : * F ig u r e s in b r a c k e ts in d ic a te p e r c e n ta g e s h a r e o f lo c a l c o m p a n ie s in th e

to ta l n u m b e r o f p a te n ts th a t a r e g r a n te d in th e U S ;

* * T h e In d ia d a ta in c lu d e s th o s e g r a n te d to lo c a l c o m p a n ie s a n d g o v e r n m e n t

r e s e a r c h in s t i tu te s


Measuring policy outcomesIndicator 3: High-tech export intensity of manufactured exports

Singapore Malaysia India South Africa Brazil1989 37.23 38.39 4.27 6.341990 39.97 38.23 3.98 6.531991 40.11 38.24 4.71 5.241992 44.82 38.96 4.06 4.83 4.971993 46.42 41.13 4.27 4.73 3.981994 50.71 44.25 4.8 4.91 4.621995 54.16 46.13 5.83 5.77 4.911996 55.71 44.41 6.9 5.7 6.251997 57.04 49.02 6.56 7.59 7.591998 59.07 55.04 9.49


Density of research scientists and engineers engaged in R&D, 1978-2001

(number per 10, 000 labour force)

Singapore Malaysia India South Africa Brazil 1978 8.41981 10.6 7.091984 18.4 7.571987 25.3 7.641990 27.7 9.05 331991 33.61992 39.8 2.1 7.471993 40.5 71994 41.9 5.81995 47.7 61996 56.3 5.1 8.241997 60.2 71998 65.5 5.8 16.31999 69.92000 83.52001 87.6


Limitations of Conventional Indicators(Source: Archibugi, Danielle and Giorgio Sirilli (2000), ‘The Direct Measurement of Technological Innovation in Business

in Innovation and enterprise creation: Statistics and indicators. Proceedings of the conference held at Sophia Antipolis, Novembeer 23024 2000, ftp://ftp.cordis.lu/pub/innovation-smes/docs/statconf_paper_a.pdf


Non-conventional indicators- The Innovation Surveys(Source: Archibugi, Danielle and Giorgio Sirilli (2000), ‘The Direct Measurement of Technological Innovation in Business in Innovation and enterprise creation:

Statistics and indicators. Proceedings of the conference held at Sophia Antipolis, Novembeer 23024 2000, ftp://ftp.cordis.lu/pub/innovation-smes/docs/statconf_paper_a.pdf

)


Non-conventional indicators of technological innovation

The case of Community Innovation Surveys in the context of European Union countries The Community Innovation survey (CIS), launched in

1991 jointly by Eurostat and the Innovation and SME Programme, aims at improving the empirical basis of innovation theory and policy at European level through surveys of innovation activities at enterprise level in the Member States.

CIS surveys collect firm-level data on inputs to, and outputs of, the innovation process across a wide range of industries and across Member States and regions in a way that allows their use in high-quality analyses

The first Community Innovation Survey, CIS I, had been launched in 1992.The second survey started in 1997 and was completed in 1999.The 3rd survey is now being carried out, the first results were expected for the end of 2002. But according to Eurostat, “up till now (November 15 2002, only 5 out of 14 countries with grant agreement with the Commission have provided Eurostat with source and final CIS3 data (FIN, S, DE, A, DK).

The data:

are collected at enterprise level. The harmonised survey gives policy makers and analysts information not only on the sectoral level, but also a detailed picture of innovation activities at the level of European enterprises

are comparable at European scale. It provides for the first time internationally comparable data on non-R&D resources, devoted to innovation and on the output of the innovation processes.

are representative. It is the first time that such a harmonised business survey has been implemented at large scale in all EU Member States.

collection is done at regular intervals,


Some critical issues in the context of CIS

The unit of analysis- problems involved when firms outsource their output

An adequate definition of innovation- innovation is a culture sensitive term

Issues regarding comparability between sectors


The Experience with respect to Innovation surveys in the context of developing countries

Of the five developing countries in my sample, three of them (namely Brazil, Malaysia and South Africa ) have experience with innovation surveys similar to the CIS.

But the response rate to these surveys never exceeded 10 per of the sample and hence the results are

unrepresentative.

In South Africa, hitherto two innovation surveys have been conducted. The results of the first survey was published in 1996 and the second one which was initiated in 2001 is expected to be published in March 2003. However the latest status report (as on November 30 2002) indicates that the actual coverage was only 8.4 per cent (616 firms)of the stratified sample of 7339 firms. The sample itself was only 43 per cent of the total population. This means that the actual response was only 3.6 per cent of the total population;

Malaysia too have conducted two innovation surveys. The first one referring to 1994 was published in 1996 and the second one which covered the period 1997-1999 was published in 2002.. The response rate was 26 per cent.

In Brazil, innovation survey is only conducted for the state of Sao Paulo


A more systematic approach towards innovation

indicators

Structure of the economy and the manufacturing sectorIssue Indicator

Relative importance of themanufacturing sector

Structure of the manufacturing sector

Share of value added of the manufacturingsectorIndustry-wise distribution of themanufacturing sector in terms of valueadded and value of output

Measuring policy outcomesa. Conventional indicators

b. Non-conventional indicators

Gross expenditure on R&D:performance and financing of R&D

Performance with respect to patentingboth domestically and abroad- share oflocal institutions (government researchinstitutes and enterprises) High tech content of manufacturedexports and its content

Equivalent of Community InnovationSurveys- qualitative measures ofinnovation

Innovation policy measuresHuman resource requirements forinnovation

Financial instruments for encouraginginnovative efforts at the firm-level

Supply of scientists and engineers-density of scientists and engineers-enrolments in science andengineering at the graduate level-incentive systems for R&D scientistsand engineers- programmes forencouraging the movements ofscientists and engineers betweenuniversities/research institutes andindustry.

Tax incentives of various sorts; Research grants of various sorts

Measures to encourage the formation of technology-based enterprises

Venture capital and its role in financinginnovation

Stage-wise distribution of VCassistance

Technology-wise distribution Venture capital development index


For further reading……...

Using innovation indicators to measure effectiveness of innovation policies Empirical Evidence from Five Type 1 Developing Countries Dr Sunil Mani United.

Documents

innovation indicatorssm

public innovation policies

business enterprise

lack of evidence

types of knowledge

rdlack of systematic

government investments

developingcountry context