Dr Sunil Mani United Nations University/Institute for New Technologies Keizer Karelplein 19

1. Using innovation indicators to measure effectiveness of innovation policiesEmpirical 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: Mani@intech.unu.edu

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 SM: USIS, Paris, March 24 2003

3. 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 SM: USIS, Paris, March 24 2003

4. Statistically significant reductions in business enterprise R&D SM: USIS, Paris, March 24 2003

5. Reduction in government financing of private sector R&D SM: USIS, Paris, March 24 2003

6. Complementarity between government investments in R&D and private sector investments in R&D SM: USIS, Paris, March 24 2003

7. Lack of evidence of globalisation of corporate innovations during the 1990s SM: USIS, Paris, March 24 2003

8. Growing imperfections in the market for disembodied technology- Evidencei SM: USIS, Paris, March 24 2003

9. Growing imperfections in the market for disembodied technology- Evidenceii SM: USIS, Paris, March 24 2003

10. Renewed debate on innovation policiesThe existence of Spillover gaps SM: USIS, Paris, March 24 2003

11. 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. SM: USIS, Paris, March 24 2003

12. 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. SM: USIS, Paris, March 24 2003

13. Content of innovation policies SM: USIS, Paris, March 24 2003

14. Taxonomy of developing countries according to their potential for creation of new technologies SM: USIS, Paris, March 24 2003

15. 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 on R&D expenses for both Manufacturing and services Techno-entrepreneurship Fund: the government launched a US$ 1 billion investment fund to attract more VC activities to Singapore • Strengthening tertiary • education in S&T fields • at the university and • polytechnic levels • Engineering to local • SMEs from FDI • Strengthening the • technological • infrastructure by • setting up 13 GRIs • in high-tech areas • Research incentive • schemes for companies • Innovation Development • Scheme • Funds for industrial • clusters • Promising Local • Enterprise Scheme 2. Malaysia Nine different types of tax incentives for R&D No specific Policy on VC industry • Industry R&D Grant • Scheme • Technology Acquisition • Fund • Intensification of research • in priority areas • Commercialisation of • R&D Fund • Multimedia Grant Scheme • Demonstrator • Applicants Grant Scheme Not clearly articulated SM: USIS, Paris, March 24 2003

16. Fiscal Instruments Country Tax incentives for R&D Research Grants Government-backed VC Non-fiscal instruments 3. South Africa Poorly defined tax incentive scheme Strengthening tertiary education in S&T fields at the university and polytechnic levels • Innovation Fund • Technology and Human • Resources for Industry • Programme (THRIP) • Support Programme for • Industrial Innovation • (SPII) • Partnership in Industrial • Innovation No specific policy on VC industry 4. India Nine different types of tax incentives for R&D • Programme aimed at • technological self-reliance • Fund for technology • development and • application • Home grown Technology\ • Programme • Technology projects on • mission mode Strengthening tertiary education in S&T fields at the university and polytechnic levels • Government-backed • VS funds • Reasonably well- • articulated public • policies for the • development of • venture capital • The INOVAR project, • which is in its initial • stages 5. Brazil There are five different types of tax incentives for R&D • Three different types of • research grants and loans • administered by two • different agencies of the • government Strengthening tertiary education in S&T fields at the university and polytechnic levels SM: USIS, Paris, March 24 2003

17. An ideal sequencing of innovation policy instrumentsCase of Singapore SM: USIS, Paris, March 24 2003

18. Growing imperfections in the market for disembodied technology- Evidenceii SM: USIS, Paris, March 24 2003

19. Measuring policy outcomesIndicator 2: Record with respect to patenting SM: USIS, Paris, March 24 2003

20. Measuring policy outcomesIndicator 3: High-tech export intensity of manufactured exports SM: USIS, Paris, March 24 2003

21. Density of research scientists and engineers engaged in R&D, 1978-2001(number per 10, 000 labour force) SM: USIS, Paris, March 24 2003

22. 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 SM: USIS, Paris, March 24 2003

23. 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) SM: USIS, Paris, March 24 2003

24. 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, Non-conventional indicators of technological innovationThe case of Community Innovation Surveys in the context of European Union countries SM: USIS, Paris, March 24 2003

25. 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 SM: USIS, Paris, March 24 2003

26. 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 The Experience with respect to Innovation surveys in the context of developing countries SM: USIS, Paris, March 24 2003

27. A more systematic approach towards innovation indicators SM: USIS, Paris, March 24 2003

28. For further reading……... SM: USIS, Paris, March 24 2003