Emerging patterns of complex technological innovation

Technological innovation is increasingly concerned with complex products and processes. The trend toward greater complexity is suggested by the fact that in 1970 complex technologies comprised 43% of the 30 most valuable world goods exports, but by 1996 complex technologies represented 84% of those goods. These technologies are innovated by self-organizing networks. Networks are those linked organizations that create, acquire, and integrate the diverse knowledge and skills required to innovate complex technologies. Accessing tacit knowledge (i.e., experienced-based, unwritten know-how) and integrating it with codified knowledge is a particular strength of many networks. Self-organization refers to the capacity networks have for reordering themselves into more complex structures (e.g., replacing individual managers with management teams), and for using more complex processes (e.g., evolving strategies) without centralized, detailed managerial guidance. Case studies of the innovation pathways traced by six complex technologies indicate that innovations can be grouped into three quite distinct patterns. Transformation: the launching of a new trajectory by a new coevolving network and technology. Normal: the coevolution of an established network and technology along an established trajectory. Transition: the coevolutionary movement to a new trajectory by an established network and technology. Policy makers and managers face the greatest challenge during those periods of movement from one innovation trajectory to another. These are periods of turbulence; they are the embodiment of Schumpeter's “gales of creative destruction.” This paper investigates how, in six case studies, core capabilities, complementary assets, organizational learning, path dependencies, and the selection environment varied among the innovation patterns. The paper builds on work reported in a recent book by the authors entitled: The Complexity Challenge: Technological Innovation for the 21st Century, Pinter, London, 1999.     

Je t'aime, moi non plus: Bilateral opinions and international trade

This paper studies the relationship between bilateral trade patterns and opinions. It uses the Eurobarometer public opinion surveys published by the European Commission, which provide data on the share of the population in each EU15 member country in favour of each CEEC joining the EU. Our results first suggest that bilateral opinions have a statistically robust and relatively large effect on imports, even when standard and new covariates capturing proximity between countries are controlled for. We interpret this effect as reflecting a positive impact of “bilateral affinity” on trade patterns. We also show that it is possible to go some way towards explaining the variance in bilateral opinions among our sample. Last we provide some preliminary attempt to determine causality between bilateral opinions and imports.     

National capacities to absorb and institutionalize external science and technology

This article describes a conceptual model of kechnology absorption and adaptation leading to a country's export-based conipetitiveness in high-technology products, and the results of the model's application to empirical data on 29 countries. The model is one output of a recently-completed, five-year investigation of indicators of high-technology development. The model's seven conceptual variables were operationalized by combining statistical data with expert-derived measures to produce composite indicators.

The seven indicators include four “leading” or infact indicators that are expected to be predictive of a nation's competitiveness, in high-techndogy products i n approximately 15 years, and three output indicators of current competitiveness: world market share, national emphasis on high technology products for export, and recent rate of change in world market share. Extensive assument of the validity and reliability of the indicators leads to the conclusion that the model is a useful tool, for both policy and research.     

Tolerance for uncertainty and the growth of informationally opaque industries

Hofstede's [Hofstede, Geert H. 1980. Culture's consequences: international differences in work-related values. Thousand Oaks, CA: Sage.] cross-country psychological survey of IBM employees finds that some countries (societies) are systematically less tolerant of uncertainty, while uncertainty-tolerance is shown by some theoretic models to be essential to the growth of emerging sectors about which less is known. This paper first uses Durnev, Morck, and Yeung's [Durnev, Art, Morck, Randall, and Yeung, Bernard. 2004. Value-enhancing capital budgeting and firm-specific stock return variation. The Journal of Finance. 59(1): 65–105.] methodology to identify these informationally opaque industries. The hypothesis is then made that countries characterized by high uncertainty aversion (measured by Hofstede's indicator, and two other alternative indicators) will grow disproportionately slower in industrial sectors where information is less available. Using the Rajan and Zingales [Rajan, Raghuram G. and Zingales, Luigi. 1998. Financial Dependence and Growth. American Economic Review. Vol. 88(3): 559–586.] “difference-in-differences” methodology, which is relatively free from the endogeneity problem, the study provides robust evidence of such an industrial growth pattern in 34 countries and 36 manufacturing industries. It also shows that national uncertainty aversion is not driven by underdevelopment of financial sector, inadaptability of civil law systems, lower level of economic or human capital development, labor market inflexibility, or any of many other institutional factors. The results remain robust when religious (Catholic vs. Protestant) composition is used as an instrumental variable for national uncertainty aversion. The international evidence presented helps explain why some countries are slower in embracing “new” (vs. traditional) industries.     

State Development Planning: Did it Create an East Asian Miracle?

East Asian countries have recorded large increases in per capita GDP over the last fifty years. Some observers have referred to this growth as an “East Asian Miracle.” One popular explanation attributes the rapid growth to state led industrial development planning. This paper critically assesses the arguments surrounding state development planning and East Asia’s growth. Whether the state can acquire the knowledge necessary to calculate which industries it should promote and how state development planning can deal with political incentive problems faced by planners are both examined. When we look at the development record of East Asian countries we find that to the extent development planning did exist, it could not calculate which industries would promote development, so it instead promoted industrialization. We also find that what rapid growth in living standards did occur can be better explained by free markets than state planning because, as measured in economic freedom indexes, these countries were some of the most free market in the world.JEL classification: O200, O170, O530, B530, P170     

The difficulties of supplying new technologies into highly regulated markets: the case of tissue engineering

This study provides an insight into the difficulties companies encounter in transposing basic science into commercially viable healthcare technologies, focusing on the issue of establishing a dominant supply model within a highly regulated market. The core issue is how to scale-up customised scientific processes into products able to supply wider and possibly mass markets. In tracing the development of approaches to scaling-up, the paper highlights the influence regulatory regimes have on high technology regulated products and services. The paper details the implications of two contrasting supply initiatives towards operationalising tissue engineering, based on differences in regulatory regimes between Europe and the USA.     

Using early concept narratives to collect valid customer input about breakthrough technologies: The effect of application visualization on transportation

The value of early customer input has long been recognized by companies. However, especially when breakthrough technologies are involved, more insight in valuable methods for collecting early customer input is needed. In this paper, we propose a method to evaluate a breakthrough technology with customers. First, a creative process should point out applications of the breakthrough technology. Applications allow customers to imagine the benefits of the technology behind it. By using early concept narratives, typically scenarios of somebody using and interacting with the application, this imagination process is enhanced. When no prototypes are available yet, it appears that narratives and visuals allow customers to really “see” the new world of the application, a process called transportation, which is a mix of imagery, feelings, and attention. In an experiment in which we make use of a case of an application of a breakthrough technology, we provide empirical support for our claim that early concept narratives could be a valuable tool to get valid customer reactions. Furthermore, we show which kind of visual format the applications should have in order to optimize transportation. The results of this study will support decision making about how to pursue breakthrough application evaluations early in the product development process.     

An evolutionary model of long term cyclical variations of catching up and falling behind

We generalize a single-country model of endogenous growth to the case of a multi-country world economy in which technology transfer and behavioral imitation are the possible means of interaction between countries. The model is evolutionary in the sense that the economies are disaggregated by behaviourally heterogeneous firms, market selection occurs, and the innovation process is uncertain and stochastic. We demonstrate that this structure leads to a complex process of convergence and divergence over time that can be characterized as 1/f noise. Spectral analysis of measures of convergence for six core OECD countries in the period 1870–1989 reveals a similar pattern in the empirical data.     

Manufacturing consumption,relative prices,and productivity

I study the patterns of manufacturing consumption expenditures across a broad set of countries that differ in their level of development using disaggregated expenditure and price data. The relative price of manufacturing tends to decline with income and the real share rises with income, particularly for countries in the top half of the income distribution. I find that the nominal expenditure share of manufacturing displays a hump-shape pattern with respect to the level of income per capita. I document that the income elasticities of the relative price of individual manufacturing categories lie in a wide range. However, since most categories have a negative elasticity, the average elasticity for manufacturing is negative. In addition, most aggregations of individual categories, regardless of the criteria used, yield manufacturing sub-sectors that feature a negative income elasticity of its relative price and the variation across income in nominal expenditure shares tends to mask a larger variation across income in real shares. Using a standard development accounting framework, I report large differences in productivity across countries for manufacturing categories. I also find some differences in productivity across countries for manufacturing sub-sectors, but these differences are smaller than the differences between manufacturing and services and considerably smaller than the differences across individual manufacturing categories.     

NEW INSIGHTS INTO THE STRUCTURE OF THE WORLD ECONOMY*

The United Nations' newly completed study of purchasing power parities covering 34 countries varied in region, income level, and form of economic organization shows the systematic differences between the usual view of the structure of the world economy arising out of international comparisons based upon foreign exchange rate conversions and the structure one sees when actual prices are available. The real per capita GDP of developing countries is understated relative to developed countries when exchange rates are used in converting countries' national income accounts to a common currency, with the degree of understatement for any two countries being inversely related to the per capita income difference between them. The reason for this is that relative prices in the non-traded goods sector are lower relative to traded goods prices in low income countries. The systematic pattern observed in the 1975 data of the 34 countries has been extrapolated over time and space to get estimates of GDP for other years and countries. In the absence of detailed price data, the real shares of final expenditures devoted to particular components of the total can only be estimated as the proportion of own currency total expenditure devoted to the components. The observed differences in the pattern of prices of poor countries relative to rich for different components makes this clearly wrong for international comparisons, and in systematic ways. For example, (i) the relative price of services compared with commodities in poor countries is lower than in rich; so the apparent tendency of the share of services to rise as a country's income rises disappears when real quantities are considered; similarly, (ii) the relative price of capital goods is greater in poor countries compared with rich ones, so the difference in investment ratios out of GDP between rich and poor countries is understated.     

Globally evolutionarily stable portfolio rules

The paper examines a dynamic model of a financial market with endogenous asset prices determined by short-run equilibrium of supply and demand. Assets pay dividends that are partially consumed and partially reinvested. The traders use fixed-mix investment strategies (portfolio rules), distributing their wealth between assets in fixed proportions. Our main goal is to identify globally evolutionarily stable strategies, allowing an investor to “survive,” i.e., to accumulate in the long run a positive share of market wealth, regardless of the initial state of the market. It is shown that there is a unique portfolio rule with this property—an analogue of the famous Kelly rule of “betting your beliefs.” A game theoretic interpretation of this result is given.     

Market share determination in marketing service industries - A demand side approach∗

A marketing service industry provides its business clients with its services such as advertising media or inbound telecommunication ( i.e. toll free 800 calls) to increase their sales. By extending Dorfman and Steiner (1954) to the world where firms obtain costly marketing services from outside specialized providers, this paper studies the market shares of providers of a marketing service from the perspective of their clients. It derives that at the optimal point for a representative client, a provider's market share equals the ratio of the profits contributed by its service to the total profits contributed by the services of all providers in the market. Under certain conditions, a provider's market share is just a function of quality-price ratios. This result should facilitate choosing a marketing service from alternative providers and analyzing market shares in marketing-service industries.     

Is Japan really a share economy?

Weitzman claims that Japan is a “living laboratory” for the share economy. This paper examines that proposition and concludes that Japanese bonuses are better interpreted as disguised wage payments than as profit shares. Other institutional features of the Japanese labor market provide more likely explanations of that economy's performance.     

The future of fiscal federalism

For at least three decades after World War II, there was little interest in fiscal decentralization. Because of the large growth in public spending that took place during that period, a growth that was mainly focused at the central government level, this was a period characterized by fiscal centralization in most countries. Starting in the late 1970s, a reaction against large governments started. This reaction followed two distinct tracks: privatization and fiscal decentralization. The paper argues that these two tracks were almost two sides of the same coin and were largely mutually exclusive. They reflected similar concerns and objectives. In more recent decades, globalization has been creating global public goods or public “bads” and international activities that would require public attention or the action of a “world government”. Because no such government exists, its role is progressively being delegated to proxies, in the form of international organizations, agreements, treaties, accords and other forms of international understandings. The paper concludes that this development is likely to weaken over time the role of central governments. It also speculates that it may strengthen the importance of municipalities.     

Brain waste? Educated immigrants in the US labor market

This paper investigates the occupational placement of immigrants in the US labor market using census data. We find striking differences among highly educated immigrants from different countries, even after we control for individuals' age, experience and level of education. With some exceptions, educated immigrants from Latin American and Eastern European countries are more likely to end up in unskilled jobs than immigrants from Asia and industrial countries. A large part of the variation can be explained by attributes of the country of origin that influence the quality of human capital, such as expenditure on tertiary education and the use of English as a medium of instruction. These findings suggest that “underplaced” migrants suffer primarily from low (or poorly transferable) skills rather than skill underutilization. The selection effects of US immigration policy also play an important role in explaining cross-country variation. The observed under-placement of educated migrants might be alleviated if home and host countries cooperate by sharing information on labor market conditions and work toward the recognition of qualifications.     

Regional, national, and spatially explicit scenarios of demographic and economic change based on SRES

We report here spatially explicit scenario interpretations for population and economic activity (GDP) for the time period 1990 to 2100 based on three scenarios (A2, B1, and B2) from the IPCC Special Report on Emissions Scenarios (SRES). At the highest degree of spatial detail, the scenario indicators are calculated at a 0.5 by 0.5 degree resolution. All three scenarios follow the qualitative scenario characteristics, as outlined in the original SRES scenarios. Two scenarios (B1 and B2) also follow (with minor adjustments due to scenario improvements) the original SRES quantifications at the level of 4 and 11 world regions respectively. The quantification of the original SRES A2 scenario has been revised to reflect recent changing perceptions on the demographic outlook of world population growth. In this revised “high population growth” scenario, A2r world population reaches some 12 billion by 2100 (as opposed to some 15 billion in the original SRES A2 scenario) and is characterized by a “delayed fertility transition” that is also mirrored in a delayed (economic) development catch-up, resulting in an initially stagnating and subsequently only very slow reduction in income disparities. The spatially explicit scenario interpretation proceeds via two steps. Through a combination of decomposition and optimization methods, world regional scenario results are first disaggregated to the level of 185 countries. In a subsequent second step, national results are further disaggregated to a grid cell level, taking urbanization and regional (rural–urban) income disparities explicitly into account. A distinguishing feature of the spatially explicit scenario results reported here is that both methodologies, as well as numerical assumptions underlying the “downscaling” exercise, are scenario-dependent, leading to distinctly different spatial patterns of population and economic activities across the three scenarios examined.     

Home country effects of foreign direct investment: From a small economy to a large economy

Previous studies on home country effects mainly focused on FDI from large developed economies to other countries. But today's super recipient is a relatively larger economy than its investors and many of these investors are not classified as “developed economies.” A simple Ak type model implies that a small and more developed country investing in a large and less developed country will experience decreases in both employment and income disparity (compared to the recipient country) as the less-developed recipient country gains the higher technology of production through FDI inflows. The empirical results for the Four Tigers (source countries) and China (recipient country) are consistent with our theoretical model of FDI outflows. We also find that FDI outflows to China decrease the ratio of exports to GDP only for small source countries, even though a higher investment in China raises the share of these countries' exports-to-China to China's total imports.     

Information technology: Anatomy of a successful european collaboration

Europe is betting on a two-pronged stategy to revers the dwindling fortunes of its information technology (IT) industry in the world market. This is the completion of of the single European market by 1993, together with the promotion of R&D collaboration between European IT companies and research institutions. This paper examines why Europe is collaborationg in IT and looks in detail at the way this is happening in practice. It asks: How is it that institutions from different countries come together and generate new technologies which are genuinely European? A successful European collaborative computer project provides the focus foa the discussion. The main exphasis is on showing why the collaboration took place, what major conflicats affected the development of the project, how they were solved and how the solution of the conflicts was reflected in the actual shape of the technology produced.