Working papers published by the United Nations University - Maastricht Economic and social Research and training centre on Innovation and Technology http://www.merit.unu.edu/publications/wp.php UNU-MERIT 2008 by C. Huang, A. Notten & N. Rasters - This paper provides a comprehensive review of more than 120 social science studies in nanoscience and technology, all of which analyze publication and patent data. We conduct a comparative analysis of bibliometric search strategies that these studies use to harvest publication and patent data related to nanoscience and technology. We implement these strategies on the 2006 publication data and find that Mogoutov and Kahane (2007) [Mogoutov, A. and B. Kahane, 2007. Data search strategy for science and technology emergence: A scalable and evolutionary query for nanotechnology tracking. Research Policy, 36: 893–903.], with their evolutionary lexical query search strategy, extract the highest number of records from the Web of Science. The strategies of Glanzel et al. (2003) [Glanzel, W., et al., 2003. Nanotechnology: Analysis of an Emerging Domain of Scientific and Technological Endeavour. Steunpunt O&O Statistieken, Report. Leuven: K.U. Leuven.], Noyons et al. (2003) [Noyons, E.C.M., et al., 2003. Mapping excellence in science and technology across Europe Nanoscience and nanotechnology. Draft report of project EC−PPN CT−2002−2001 to the European Commission.], Porter et al. (2008) [Porter, A.L. et al., 2008. Refining search terms for nanotechnology. Journal of Nanoparticle Research, 10(5):715−728.] and Mogoutov and Kahane (2007) produce very similar ranking tables of the top ten nanotechnology subject areas and the top ten most prolific countries and institutions. Key words : Nanotechnology; research and development; productivity; publications; patents; bibliometric analysis; searching strategy JEL Classification : O14; O31 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-058 by T. Ziesemer - We show empirically that aid given to poor developing countries enhances growth and reduces emigration once several dynamically interacting effects of aid are taken into account in a system of equations. We estimate equations for net immigration flows as a share of the labour force and GDP per capita growth and also for all their regressors including remittances and official development aid. We use dynamic panel data methods for a sample of poor countries with GDP per capita below $1200 (2000) for which aid is about 9.5% of GDP. The partial effects in these regressions are as follows. Remittances enhance net immigration, savings, public expenditure on education and growth, but reduce tax revenues, all as a share of GDP. Net immigration enhances labour force growth and the savings ratio. Official development aid decreases the savings ratio and the per capita GDP growth rate, but it increases investment, public expenditure on education and literacy and also labour force growth. Then we integrate all equations to a dynamic system and run a simulation. The result is an endogenous migration hump with several peaks. In a counterfactual simulation we double aid with the result that for more than a hundred years migration is reduced and the GDP per capita is enhanced, because the positive effects of aid on investment and education dominate the negative direct effects of aid on growth and the unfavourable effects on savings, tax revenues, and labour force growth. JEL code: F22, F24, F35, F43, O11 Key words: International Migration, remittances, aid, growth UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-057 by Y. Getachew - Public capital investment plays an important role in long run growth through enhancing productivity and complementing the accumulation of private inputs. Under appropriate conditions, public capital could also have important implications for income distribution dynamics. When the credit market is imperfect and there are diminishing returns to private factors, income inequality is negatively related to economic growth. The dynamics of income distribution is determined by relative income shares of private input, wherever initial endowment differs among individuals. Therefore, if the provision of public capital has an effect on relative income shares of private inputs, then it will have an effect on income distribution dynamics. In this case, public capital once more becomes an important determinant of long−run growth through its indirect effect on income distribution. The paper studies this and other interesting issues with respect to public capital, income inequality and economic growth. Key words: Income distribution, Public capital, economic Growth JEL codes: D31, H54, O41 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-056 by S. Filippov & T. Saebi - The magnitude of outward FDI from China over the recent years has been impressive. It is widely acknowledged that China’s government plays an active role in encouraging its companies to go global and become multinational as they realise the value of outward FDI. The paper traces the development of China’s outward direct investment policies and discusses the various motives of Chinese companies' internationalisation. More specifically, in this paper we look at the European continent as the emerging destination for Chinese outward direct investment and analyse the implication this trend has for European companies and governments. Key words: China, multinational companies, emerging economies, outward investment, public policy JEL classification: F23, O52, E61 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-055 by F. Fortanier & R. van Tulder - This paper explores whether the internationalization trajectories – patterns over time in the level, pace, variability and temporal concentration of international expansion – of large firms from China and India are fundamentally different from those of developed country firms. A longitudinal cross−country comparative study of 256 large firms for the 1990−2004 period shows that, although internationalization trajectories of large and leading Chinese and Indian firms are indeed different, there are also considerable similarities between established developed country firms and the new firms from emerging markets, not in the least because they often interact within the same sector Key words: Internationalization trajectories, Transnationality Index (TNI), longitudinal research, crosscountry comparison JEL codes: F21, F23, M19 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-054 by N. Kumar & A. Chadha - Indian and Chinese enterprises have emerged as important outward investors in recent times with their involvement in a number of prominent Greenfield investments and acquisitions. The theory of international business posits that the ownership of some unique advantages having a revenue generating potential abroad combined with the presence of internalization and locational advantages leads to outward FDI. Conventional MNEs based in the industrialized countries have grown on the strength of ownership advantages derived from innovatory activity that is largely concentrated in these countries. It examines the case of steel industry that has become an important sector of overseas activity for Chinese and Indian companies with a string of major acquisitions of foreign MNEs for acquiring footprints and natural resources in order to identify the sources of ownership advantages and strategies of outward investments from emerging countries. JEL codes: O1, L61 Key words: FDI outflows, steel, India UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-053 by G. Duysters, J. Jacob, C. Lemmens & J. Hu - In recent years, a number of firms from Asia and Latin America have been internationalizing their businesses to access new markets and to acquire new technology. This follows similar attempts only a few years earlier by leading firms from countries such as Korea and Taiwan. Much research has gone during the last two decades into understanding the success of Korean and Taiwanese firms. In this paper we carry out a case study of the Haier group—one of the most promising global enterprises emerging out of mainland China. We explain the need for recognizing some important differences in the early stages of growth between emerging MNCs today and MNCs from Korea and Taiwan. Unlike firms from the latter countries, globalizing firms of recent times during their early years of existence had little incentives to improve their technological competence. Furthermore, they generally had a one−off relationship with international technology suppliers that further prevented the regular upgrading of their technological base. Nevertheless these firms have shown themselves to be adept in facing up to the challenges of globalization by adopting innovative technological and business strategies. What are the distinctive features of these strategies? How useful are these strategies for long−run growth? What lessons can other firms and governments learn from these experiences? We hope to offer some preliminary answers to these important questions. Case studies like ours can also contribute towards developing newer frameworks for a better understanding of the internationalization of businesses in modern times. JEL codes: L24, L25, O19, O32, M13 Key words: emerging MNCs, internationalization, technology strategies, alliances, technological catching up, Haier group, China. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-052 by A. Godley & S. Athreye - Internationalisation is a useful strategy to gain firm specific advantages during periods of technological discontinuity. The pharmaceutical industry offers us two such episodes as examples: when the antibiotics revolution was beginning and when the possibilities of genetic routes to new drug discovery were realised. This paper compares the strategies adopted by laggard U.S. firms scrambling to gain capabilities in antibiotics, and Indian firms equally eager to acquire positions in new biotechnology based drugs and shows that both groups used internationalisation strategies to gain technological advantages and build up their firm specific advantages. Key words: Technological leapfrogging, Internationalisation Strategies, Indian Pharmaceutical industry, Antibiotics revolution, US Pharmaceuticals. JEL codes: F2, L2, L6,N8, O3 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-051 by J. Niosi & F. Ted Tschang - China and India are emerging as major new entrants in the international software industry. Both are rapidly learning through outsourcing with multinational enterprises from advanced nations. Yet, their paths to this dynamic sector are very different. Chinese software firms have focused on their domestic market by working with foreign MNCs, while they move cautiously abroad. Indian firms, despite already being large, continue to expand overseas as well as to climb the value chain. We show that a macro perspective on the global movement of work can be gained by utilizing concepts from different approaches to the MNC. At the same time, the innovation systems perspective is necessary to explain the foundations of the industry. The paper provides hypotheses and performs an initial validation of them. It concludes that the internationalization and learning processes are somewhat different in the Chinese and Indian MNCs, and provides explanations for the different patterns. Key words: Outsourcing, software industry, industrial development, multinational enterprise JEL Classification: P45, O14, O32, L23 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-050 by P. Estrella Tolentino - The current study examines the relationships between several home country−specific macroeconomic factors and the level of the outward FDI of China and India using multiple time−series data from 1982 to 2006 and from 1980 to 2006, respectively. With the use of a vector autoregressive model assessing the causal relationships of the endogenous variables, the empirical research proves that Chinese national characteristics associated with income per capita, openness of the economy to international trade, interest rate, human capital, technological capability, exchange rate and exchange rate volatility do not Granger cause the level of outward FDI of China. By contrast, the national technological capability of India Granger causes their level of outward FDI. The level of outward FDI of China does not Granger cause any of the home country−specific macroeconomic factors considered, while the level of outward FDI of India Granger causes their national interest rate. Key words: outward FDI; home country; FDI determinants; Chinese MNCs, Indian MNCs, VAR model JEL codes: F23, C32, C51 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-049 by F. Toro - Agenda−setting disputes have become increasingly central to the conduct of multilateral trade negotiations. Introducing some simple concepts from Negotiations Theory, we focus on the dynamic interplay between the Doha Round’s agenda setting and bargaining stages, underlining their implications for the European Union’s evolving win−set in the negotiations. We argue that, by successful enshrining a narrow agenda, key developing countries reduced the set of possible final settlements that were both multilaterally viable and attractive from the point of view of key European interests. In an attempt to avoid imposing concentrated costs on those interests, the European Commission has responded by pursuing its best alternative to a multilateral agreement, shifting negotiating resources away from the multilateral table and towards regional FTA negotiations. JEL Code: F13 Keywords: Trade Policy−making, Doha Round, EU, sectoral lobbying, trade negotiations UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-048 by Z. Babutsidze & R. Cowan - This paper is concerned with clustering in demand. We present a discrete choice model of consumption that incorporates habit formation and information exchange among consumers in fixed social networks. We provide an analytical solution to a special case of the model by using technical tools from chemistry and biology. We demonstrate the validity of these results for the general case numerically. It is shown that clustering in demand is a solution to the complex system we are analyzing, and that clustering pattern can be short−term or long−lasting depending on the characteristics of the society. JEL codes: D11, D83, C65. Key words: demand, clustering, information, partial differential equations. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-047 by A. van Zon & T. Schmidt - In this paper we seek to explain the causes and consequences of Northern penetration in Southern subsistence markets in order to reach the countless masses at the Bottom of the (Income) Pyramid. To this end we formulate a One−North−Many−Souths model, inspired by the Krugman (1979) North−South model. In our model, Southern countries are differentiated with respect to population size, but also the degree of internal connectedness as a proxy for the cost involved in reaching the local subsistence market. Northern subsistence goods production in Southern countries takes place under increasing returns to scale, why local production of subsistence goods takes place under constant returns to scale. Using this set−up, we show what kind of Southern countries would be penetrated first, and under which conditions this would happen. From the point of view of Northern producers, Southern countries can be divided into three classes: the broad class of partner− and non partner countries, and within the class of partner countries, the sub−classes of small and large partners. In this context, small partners are so small, that all of local subsistence production is taken over by the North, while in large countries part of subsistence consumption must still be met out of local subsistence production. The main insights coming from numerical simulations with the model are that Northern penetration on Southern markets releases (labor) resources that can then be used for producing tradable luxury goods. This has a negative terms of trade effect for the South, but a positive income effect, while, moreover, the latter effect tends to outweigh the former. In addition, small partner countries generally stand to gain more from Northern penetration than large countries, as in small partner countries relatively more resources would be released when shifting production of subsistence goods from local to Northern technologies. Using numerical simulations in which we increase the rate of imitation, we show that this leads to higher terms of trade for the South, and consequently, a higher penetration of the North in Southern countries with respect to subsistence production. The reason is that the opportunity cost of using Northern labor in Northern luxury goods production falls, and consequently more Northern labor is allocated to its alternative use of managing subsistence goods production in Southern countries. Thus we are able to ‘explain’ the recent penetration of Northern firms in subsistence goods production in countries like India and China (which have become increasingly important as manufacturing trading partners), as the latter countries are both large in population terms as well as relatively well connected. JEL−codes: D58,F12,F16,F23,O33. Key words: Bottom of the Pyramid, North−South model, luxury goods, subsistence goods. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-046 by R. Belderbos, B. Ito & R. Wakasugi - R&D in foreign affiliates and technology transferred from their parent firms are important potential drivers of productivity in host countries. In this paper we examine the simultaneous impact of local R&D and intra−firm international technology transfer on productivity growth in foreign affiliates. We estimate a dynamic productivity model on a large sample of Japanese manufacturing affiliates worldwide in 1996−1997 and 1999−2000. We find that both affiliate R&D and intra−firm technology transfer contribute to productivity growth, while technology transfer exhibits decreasing marginal returns. The two sources of technology are complements: use of one source of technology increases the marginal impact of the other. Keywords: R&D, technology transfer, multinational firms JEL codes: F23, O32, O33 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-045 by L. Marins - The traditional indicators on innovation rely on the linear assumption that research leads to development, centring on the measurement of inputs and outputs. Based on the traditional innovation indicators, recent studies focused on the industrial innovation process at Latin America state that nowadays Latin American firms display a passive role at world’s innovative activities, characterised by the lack of firms’ innovative skills. However, these indicators do not seem to be the most appropriate for measuring innovation, especially in emerging economies’ firms. The focus of this paper is to theoretically propose a set of new indicators on innovation that might be more adequate to the reality of firms located in emerging economies, centring on the way innovation activities process takes place within the firms. In order to do so, the paper searches for support from five approaches of the economic theory. The validation of the suggested set of new indicators could shed some light on the understanding of the innovative performance of emerging economies’ firms. Keywords: innovation process, indicators, economic theory, emerging economies’ firms. JEL Classification: L20, M10, M21, O30. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-044 by N. Kwanjai & F. den Hertog - This chapter attempts a step forward in seeking a richer understanding of the dynamics of strategic alliances, specifically when viewed from a cross−cultural perspective. We report selected materials from a study designed to build a theory of culture and learning in organizations based on observations of and open−ended interviews with Dutch and Thai employees working for four selected Dutch firms in Thailand. Here we present one of those cases, a Dutch−Thai joint venture that thrived by weaving together the many intricate cultural webs to achieve a unique pattern of partnership which, metaphorically speaking, became its indispensible trademark. The case illustrates how the three levels of culture – national, organizational, and professional cultures – could all interlace in a real world setting and serve as an instrumental force of success amidst tension in one particular cross−border strategic alliance. First, we adopt a thick descriptive style of case narration to present the case of a Dutch− Thai joint venture, Chuchawal−De Weger Internationaal (CDW), painting a portrait of its origin, evolution and characteristics. Next, we turn to elaborate on the particular issue of cultural crossing, its exact theorized properties, dimensions and implications. Finally, we relate the case of CDW to the proposed theory and conclude with a reflection on how this case and our interpretation of it illuminate the complex role culture can play in the dynamics of strategic alliances. Key words: cross−cultural management, culture, qualitative case study, strategic alliance, thick−description, JEL codes: F23, L24, M16, Z13 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-043 by S. Akçomak & B. ter Weel - This paper investigates the relation between social capital and crime. The analysis contributes to explaining why crime is so heterogeneous across space. By employing current and historical data for Dutch municipalities and by providing novel indicators to measure social capital, we find a link between social capital and crime. Our results suggest that higher levels of social capital are associated with lower crime rates and that municipalities’ historical states in terms of population heterogeneity, religiosity and education affect current levels of social capital. Social capital indicators explain about 10 percent of the observed variance in crime. It is also shown why some social capital indicators are more useful than others in a robustness analysis. JEL classification: A13; A14; K42; Z13 Key words: Social capital; Crime; the Netherlands UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-042 by S. Athreye, D. Kale & S. Ramani - This paper demonstrates that radical regulatory changes can be tantamount to technological revolutions by studying Indian pharmaceutical firms. It shows that radical regulatory changes such as the Indian Patent Act of 1970, the New Industrial Policy of 1991 and the signing of TRIPS (Trade Related Intellectual Property Rights System) in 1995 served to open up new economic opportunities and constraints in the wake of which the winners and losers were selected as a function of the dynamic firm capabilities most appropriate for the new market environment. Key words: International marketing, R&D management, Indian pharmaceutical sector, corporate strategy. Jel Codes: L1, L2, L5, L6, O3 and O5. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-041 by M. Srholec - Innovation is a multilevel phenomenon. Not only characteristics of firms but also environment within which firms operate matter. Although this has been for long recognized in the literature, a quantitative test that explicitly concerns the hypothesis that framework conditions affect innovativeness of firms remains lacking. Using a large sample of firms from many developing countries, we estimate a multilevel model of innovation that integrates explanatory factors at different levels of the analysis. Apart from various firm’s characteristics, national economic, technological and institutional conditions directly predict the likelihood of firms to innovate. Key words: Innovation, technological capability, multilevel modeling, institutions, developing countries. JEL codes: C30, E11, O30 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-040 by B. Lokshin - This paper extends the LSDV bias−corrected estimator in [Bun, M., Carree, M.A. 2005. Bias−corrected estimation in dynamic panel data models, Journal of Business and Economic Statistics, 23(2): 200−10] to unbalanced panels and discusses the analytic method of obtaining the solution. Using a Monte Carlo approach the paper compares the performance of this estimator with three other available techniques for dynamic panel data models. Simulation reveals that LSDV−bc estimator is a good choice except for samples with small T, where it may be unpractical. The methodology is applied to examine the impact of internal and external R&D on labor productivity in an unbalanced panel of innovating firms. Key words: Bias correction, unbalanced panel data, GMM; dynamic model JEL codes: C23 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-039 by T. Azomahou, R. Boucekkine & B. Diene - In this paper, a simple general equilibrium model à la Solow is developed to capture the impact of AIDS on economic growth. To this end, a benchmark model due to Cuddington and Hancock (1994) is extended in various directions. In particular, the sharply declining life expectancy patterns are clearly re°ected in the enlarged model through a generic Ben−Porath mechanism. AIDS−related health expenditures are incorporated as well. Using up−do−date optimal forecasting methods, the model applied to South Africa shows that while a relatively short term assessment might not reveal any dramatic AIDS growth e®ect, the medium/long run impact can be truly devastating. In particular, the heavy trends in mortality and life expectancy currently induced by AIDS are shown to be potentially at least twice more detrimen−tal for per capita economic growth in the period 2020−2030 compared to 2000−2010. Key words: Epidemics, life expectancy, economic Growth, AIDS JEL codes: C61, C62, O41 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-038 by B. Los & B. Verspagen - We investigate technological change with regard to CO2 emissions by passenger cars, using a Free Disposal Hull methodology to estimate technological frontiers. We have a sample of cars available in the UK market in the period 2000 – 2007. Our results show that the rates of technological change (frontier movement) and diffusion (distance to frontier at the car brand level) differ substantial between segments of the car market. We conclude that successful policies should be aimed at diffusion of best−practice technology, and take account of the different potential for further progress between different segments of the market (e.g., diesel and gasoline engines, and small vs. large engines). JEL Codes: Q55, O31, O33 Key words: CO2 emissions by cars; technological change; diffusion of innovations UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-037 by W. Schoenmakers, G. Duysters & W. Vanhaverbeke - This paper looks at the special characteristics of radical inventions. It tries to identify those variables that differentiate radical inventions from non−radical inventions. Since radical inventions are very important for the economy as a whole and for the individual firm performances, understanding what makes radical inventions differ from non−radical inventions is very important. For our research we made use of the EPO (European Patent Office) database on patents. We used the number of forward patent citations per patent to identify radical from non−radical inventions. For our analysis we used the backward patent citations per patent. In order to test if the two groups we are considering are truly different and to see on what factors they differ we made use of discriminant function analysis. Some of our main conclusions are that radical inventions are to a higher degree based on existing knowledge than non−radical inventions. Also the combination of emergent and mature knowledge is more important for radical inventions. A further result that follows from our analysis is that radical inventions are induced by the recombination over more knowledge domains as compared to non−radical inventions. Our research hints also on the importance of alliances and an open innovation system for the development of radical inventions. Key words: radical inventions, patents, organizational learning, alliances. JEL Codes: O30, O31, O32, O33, O34, D83. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-036 by N. Sharif & C. Huang - In this chapter, we undertake a comparative study of the performance of local and foreign competitors’ manufacturing firms in a FDI−recipient region—Guangdong Province, China—and analyzes the policy implications of the comparison for the advanced, FDI−outflow region—Hong Kong Special Administrative Region (HKSAR). By highlighting changes in productivity that vary with changes in manufacturing firm ownership, we reveal that domestic firms have been catching up with their foreign counterparts, including Hong Kong−based firms, though foreign firms have successfully strengthened their dominating position in Guangdong’s manufacturing industry. JEL Codes: D24; L60; O47 Key words: Total Factor Productivity, Manufacturing Sectors, Asia, China, Guangdong, Hong Kong UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-035 by B. Lokshin & P. Mohnen - This paper examines the impact of the Dutch R&D tax incentives program, known as WBSO, on the wages of R&D workers. In our model these wages are partly determined by the government’s WBSO tax disbursements. We construct detailed firm− and time specific R&D tax credit rates as a function of the R&D tax incentives scheme to capture the wage effects of the government R&D support. An instrumentalvariables econometric model is estimated using an unbalanced firm−level panel data covering the period 1996−2004. After controlling for firm and industry effects and business cycle fluctuations, R&D tax incentives are found to increase R&D wages. The R&D wage effect of these incentives is smaller than their effect on real R&D investment, but it is still sizeable. The elasticity of the R&D wage with respect to the fraction of the wage supported by the WBSO scheme is estimated at 0.1. Key words: price effect of tax incentives; tax credits; panel data model; R&D wages JEL Codes: O32, O38, H25, J30, C23 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-034 by E. Kesidou & A. Szirmai - This paper examines the importance of local knowledge spillovers for the innovative and economic performance of firms in a developing country context. Theoretical and empirical studies in advanced economies underline the significance of local knowledge spillovers for innovation. However, not much is known about whether local knowledge spillovers work similarly in developing countries. This analysis is based on an original innovation survey in the software industry in Uruguay. The survey focuses on the direct identification and measurement of local knowledge spillovers; pure knowledge spillovers are distinguished from commercial knowledge transactions. Both knowledge spillovers and knowledge transactions are measured at the local and at the international level. The study concludes that local knowledge spillovers play a crucial role in enhancing the innovative performance of software firms in Uruguay. However, for the economic performance of the firms, international knowledge transactions turn out to be more important than local knowledge spillovers. Local Knowledge Spillovers may be essential for innovation, but not sufficient for economic success. Firms in developing countries need to be connected to both the local and the international economy. Keywords: local knowledge spillovers, innovation, economic performance, developing economies JEL Codes: L86 (Information and Internet Services, Computer Software), O31 (Innovation and Invention); O33 (Technological change: Choices and Consequences; Diffusion Processes) UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-033 by T. Azomahou, R. Boucekkine & P. Nguyen Van - We develop a general equilibrium vintage capital model with embodied energy−saving technological progress and an explicit energy market to study the impact of investment subsidies on investment and output. Energy and capital are assumed to be complementary in the production process. New machines are less energy consuming and scrapping is endogenous. It is shown that the impact of investment subsidies heavily depends on the structure of the energy market, the mechanism explaining this outcome relying on the tight relationship between the lifetime of capital goods and energy prices via the scrapping conditions inherent to vintage models. In particular, under a free entry structure for the energy sector, investment subsidies boost investment, while the opposite result emerges under natural monopoly if increasing returns in the energy sector are not strong enough. JEL codes: E22; O40; Q40 Key words: Energy−saving technological progress; vintage capital; energy market; natural monopoly; investment subsidies UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-032 by R. Perrot & L. Mytelka - Recent and rampant regulatory changes for sustainable development are seeking to transform current energy systems towards cleaner and greener forms of energy sources. In this scenario, alternative energy technologies are considered the building blocks towards this transformed energy system. This chapter will show how the alternative energy market since the 1970s changed, in response to external oil price shocks and to other selective pressures and institutions. It will observe that the configuration of the market has been changing since 1970s, in terms of firm−composition, size and types of technologies considered in the green energy mix. It will further provide three explanations explaining why there are changes between firms, policies and these energy technologies. These three processes are considered important in determining technological innovation among firms in clean and green energy technologies. Key words: Renewable energy technologies, firm competition, nature of technologies, energy technologies JEL codes: O19, O13, N70, Q01, Q55 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-031 by T. Saebi & Q. Dong - This paper compares the key drivers of Sino−foreign alliance formation from the perspective of both Chinese and Western alliance partners. Our results indicate that Chinese companies enter into alliances with Western companies mainly to get accesses to international markets and to develop their technological and managerial competences further, while Western partners aim to gain access to the local customer and supplier bases of their Chinese counterpart as well as to the complex distribution systems found in the Chinese market. In analyzing the differences among Chinese and Western alliance motives, this paper shows how the initial deficiencies in the Chinese institutional environment has shaped the strategic motives of local companies and consequently lead to the diverging alliance formation motives in Sino−foreign alliances. JEL cdes: F23, L24 Key words: Strategic alliances, China, Innovation, Internationalization UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-030 by T. Ziesemer - We estimate the impact of worker remittances on savings, taxes, and public expenditures on education, all as a share of GDP, for about thirty years in two samples of countries with per capita income above and below $1200 using dynamic panel data methods. Governments of the poorer sample raise less taxes in the short run but more in the long run and spend more money on education when remittances come in; in the richer sample they raise less taxes and spend less on education in response to remittances but this is almost completely compensated by the positive response of expenditure on education to higher savings, which results from remittances as well. Jel Codes: F24, H20, H52 Key words: Remittances, tax revenue, government expenditures and education UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-029 by L. Wang & A. Szirmai - This paper provides new estimates of capital inputs in the Chinese economy. Estimates are made for the total economy (1953−2003), for the industrial sector (1978−2003) and for the manufacturing sector (1985−2003). The estimates for industry and manufacturing are broken down by thirty regions. The main contribution of this paperlies in constructing hitherto unvailable estimates of capital inputs at the level of Chinese regions. The paper makes a systematic attempt to apply SNA concepts to the estimation of Chinese capital inputs, according to the Perpetual Inventory Method. It makes a clear distinction between capital services and wealth capital stocks. After a general discussion of theoretical issues in capital measurement, the paper provides a detailed analysis of the relevant Chinese statistical concepts and data. It goes on to discuss previous capital estimates in the light of the modern conceptual and theoretical discussions. It ends with an explanation of the procedures followed in constructing the national and regional capital input series. Key words: Capital Inputs, Capital Services, Regions, China, Industry, Manufacturing JEL Codes: O47 (Measurement of Economic Growth), R11 (Regional Economic Activity). UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-028 by T. Azomahou, R. Boucekkine & B. Diene - We first provide a nonparametric inference of the relationship between life expectancy and economic growth on an historical data for 18 countries over the period 1820−2005. The obtained shape shows up convexity for low enough values of life expectancy and concavity for large enough values. We then study this relationship on a benchmark model combining “perpetual youth" and learning−by−investing. In such a benchmark, the generated relationship between life expectancy and economic growth is shown to be strictly increasing and concave. We finally examine two models departing from “perpetual youth" by assuming successively age−dependent earnings and age−dependent survival probabilities. With age−dependent earnings, the obtained relationship is hump−shaped while agedependent survival laws do reproduce the convex−concave shape detected in the prior empirical study. Key words: Life expectancy, economic growth, perpetual youth, age−dependent mortality, nonparametric estimation JEL codes: O41, I20, J10 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-027 by S. Filippov & K. Kalotay - The life sciences sector (and biotechnology in particular) has emerged as a prospective area, and attracted a lot of attention recently. Multinational companies in the life sciences seek to explore new markets, and, on the other side, governments strive to develop the life sciences sector perceiving it as a basis for long−term development. Whilst the R&D activities of global multinationals in life sciences still remain concentrated in the Triadic economies, these companies increasingly seek for new location to tap the knowledge. New EU member states emerge as such prospective locations. Notwithstanding the interest towards this sector, the body of literature on the development of life sciences in new EU member states, and particularly, the role of multinational companies, remains scant. In this explorative study we attempt to fill this gap and focus on the role of multinational companies in the Czech life sciences sector. JEL codes: F21 F23 L65 O32 Keywords: life sciences; biotechnology; pharmaceuticals; multinational companies; EU UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-026 by S. Cantono & G. Silverberg - An obstacle to the widespread adoption of environmentally friendly energy technologies such as stationary and mobile fuel cells is their high upfront costs. While much lower prices seem to be attainable in the future due to learning curve cost reductions that increase rapidly with the scale of diffusion of the technology, there is a chicken and egg problem, even when some consumers may be willing to pay more for green technologies. Drawing on recent percolation models of diffusion by Solomon et al. [7], Frenken et al. [8] and Höhnisch et al. [9], we develop a network model of new technology diffusion that combines contagion among consumers with heterogeneity of agent characteristics. Agents adopt when the price falls below their random reservation price drawn from a lognormal distribution, but only when one of their neighbors has already adopted. Combining with a learning curve for the price as a function of the cumulative number of adopters, this may lead to delayed adoption for a certain range of initial conditions. Using agent−based simulations we explore when a limited subsidy policy can trigger diffusion that would otherwise not happen. The introduction of a subsidy policy seems to be highly effective for a given high initial price level only for learning economies in a certain range. Outside this range, the diffusion of a new technology either never takes off despite the subsidies, or the subsidies are unnecessary. Perhaps not coincidentally, this range seems to correspond to the values observed for many successful innovations. JEL Codes: C61, H23, O32, O33 Key words: Innovation diffusion, learning economies, percolation, networks, heterogeneous agents, technology subsidies, environmental technologies UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-025 by S. SadreGhazi & G. Duysters - In recent years a new debate is emerging about market−based approaches to serve lowincome communities, opportunities in such markets and the role of multinational corporations. This paper aims at providing an overview of low−income markets thereby analyzing challenges that multinational corporations face in addressing such markets. Various examples of low−income market approaches are examined and different firm strategies regarding R&D, production and distribution in such markets have been illustrated and discussed. It is argued why specific strategies, many of them new to multinationals, are to be devised when it comes to serving low−income communities. Key words: Multinational corporations, Low−income markets, Bottom of the Pyramid, Business strategy JEL codes: F23, M19, O32, O19 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-024 by F. Santiago−Rodriguez - In pursue of innovation, developing countries play an increasingly relevant role for multinational pharmaceutical firms. Driven partly by cost considerations but also by some host country−specific scientific and technological factors, global drug companies increasingly relocate part of their drug development activities to those countries. In particular, expansion of clinical trials performed in some of the more advanced developing countries is notable over the last years. This paper critically addresses some of these issues with particular reference to Mexico. The latter case equally illustrates some challenges developing countries face to accommodate and govern local performance of clinical trials according to strict internationally accepted regulatory and ethical principles. JEL Codes: 032; I18; F23; L65 Key words: Internationalization of R&D, Governance of clinical trials, Developing countries, Mexico UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-023 by R. Cowan & N. Jonard - Network formation is often said to be driven by social capital considerations. A typical pattern observed in the empirical data on strategic alliances is that of small world networks: dense subgroups of firms interconnected by (few) clique−spanning ties. The typical argument is that there is social capital value both to being embedded in a dense cluster, and to bridging disconnected clusters. In this paper we develop and analyze a simple model of joint innovation where we are able to reproduce these features, based solely on the assumption that successful partnering demands some intermediate amount of similarity between the partners. JEL Codes: D83, D85, L14, D74 Key words: Network formation; Strategic alliances; Knowledge portfolios UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-022 by F. Pereira de Carvalho & A. Goldstein - This chapter analyses foreign direct investments (henceforth FDI) in the oil industry from two large emerging economies, Brazil and China, with the purpose to understand the role of Governments and technology in the internationalisation strategies of those firms. The chapter shows that the Brazilian oil company, Petrobras, internationalised in the 1970s in order to secure oil resources, and throughout time developed technological capabilities that explain its current success and worldwide expansion. Chinese firms have risen later and are making their outward moves in order to catch up technologically with the world's leading firms. Key words: multinational corporations, emerging economies, oil companies, technology, technological exploitation, competitive advantages. JEL Codes: F23, O25, O38, O57 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-021 by I. Costa, A. Doranova & G. Eenhoorn - This paper analyses the participation of firms without GHG emission liabilities as technology providers in CDM and JI projects, the flexibility mechanisms of the Kyoto Protocol. It argues that the motivations for those firms to engaging in CDM and JI projects is based on market stimuli beyond those related to the emission market itself. Instead, their motivations are largely associated with search for new markets where their technological resources and expertise can be exploited. The analysis is based on three firms from the Dutch waste management industry. These cases suggest that the Kyoto's mechanisms compensate to some extent the weakness of the underdeveloped waste management sector in developing and transition economies. Key words:Waste Management Industry, Kyoto Protocol, International Expansion, Firm−specific advantages JEL codes: L19; L22; L59; L98; Q28 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-020 by B. Urem, L. Alcorta & T. An - This paper studies the relationship between foreign ownership and innovations of high novelty in context of advanced developing countries. We develop hypotheses about a direct relationship in terms of two dimensions, propensity and intensity of innovations of high novelty, and a contingency hypothesis about the moderating impact of R&D internationalisation on the relationship with propensity. The analysis is based on innovation survey data on manufacturing firms from Jiangsu province of China. Hypotheses are tested using non−parametric methods. We find that foreign firms do not have a higher propensity of innovations of high novelty, not even when they engage in formal R&D. However, the evidence suggests that foreign firms have a higher intensity of innovations of high novelty than domestic firms. JEL codes: F23; L60; O31 Keywords: multinational enterprises, foreign firms; innovation; manufacturing; China UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-019 by N. Kwanjai & F. den Hertog - This paper makes a case for the value of looking at culture and multinationals from a management and organizational perspective because it is one which could direct greater attention towards culture as a significant factor in future investigation on multinational corporations. We attempt to illustrate that multinationals are fundamentally multicultural units in more ways than one. This paper is based on selected materials from a qualitative study of culture and learning in organizations and management. The study investigated four selected Dutch firms in Thailand using evidences collected through observations and open−ended interviews. All evidences were analysed under grounded theory procedure. Parts of the evidences and theorization from the study are presented in this paper, which begins with two cultural riddles from one of the cases as a backdrop for subsequent discussions. Following the riddles is an abridge version of the key finding of the study−a grounded theory of cross−cultural intelligence. Then the two riddles are revisited, this time to illustrate how the proposed theory could illuminate an understanding of their covert meanings vis−a−vis culture and learning in multinationals. Last, we reinstate how our study and its theoretical and empirical findings can elucidate the central thesis that multinationals are essentially multicultural units. Keywords: case study, culture, cultural intelligence, multinationals, Netherlands, Thailand JEL codes: F23, M16 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-018 by J. Rosa & P. Mohnen - This study examines whether the transfer of knowledge flows from universities to enterprises in Canada is hampered by the geographical distance that separates them. The transfer of knowledge flows are measured by the amount of R&D payments from business enterprises to universities that are directly reported in Statistics Canada's survey on Research and Development in Canadian Industry. We use data from the 1997 to 2001 surveys. After controlling for unobserved individual heterogeneity, selection bias as well as for other covariates that could affect the extent of industry−university R&D transactions such as absorptive capacity, foreign control, belonging to the same province, past experience with a given university and other firm and university characteristics, it is found that a 10% increase in distance decreases the proportion of total R&D paid to a university by 1.4 percent for enterprises that do not report any codified transfer of knowledge flow, and by half as much for enterprises that report codified knowledge flows. JEL codes: O3 Keywords: knowledge transfer, university/enterprise, codified/tacit, spatial proximity UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-017 by K. Lal & T. Dunnewijk - Innovation strategies of entrepreneurs are mapped with growth and performance of their firms in this study. Findings of the study are based on the data collected from 1238 small ICT firms located in 25 member states of European Union. The survey was conducted during October 2006 and March 2007. Results of Logit analysis suggest that firms that pursued continuous innovation strategies experienced more employment growth, higher profitability, and better sales dynamics than those that adopted occasional innovation approach. Market growth of continuous innovating firms realized faster pace than other type of firms. Another distinguishing characteristic of two types of firms emerged is market preference. Target market of continuous innovating firms has been European or global markets while innovative activities of other firms targeted domestic market. The study concludes that European innovation policies should be focused towards continuous innovation activities with due attention at human resource development policies. Keywords: dynamic capabilities, continuous innovation, occasional innovation, competitiveness, human resources, internationalization UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-016 by R. Weehuizen, B. Sanditov & R. Cowan - Innovation is a source of increasing productivity, but it is also a source of stress. Psychological research shows that moderate stress increases the productivity of an actor, but above a certain level, additional stress decreases productivity. Stress is reduced by coping behaviour of the actor, and in addition it is bu_ered by social relations. However, high levels of stress negatively a_ect social relations, causing social erosion. In a formal model including inter−agent dynamics, we show that the variables moderating stress levels are of crucial importance for identifying the overall e_ects of di_erent rates of innovation on productivity. The model shows among other things that the existence and nature of relationships of people determine the extent to which a certain rate of innovation e_ectively results in increasing productivity. In addition, it shows the possibility of multiple equilibria − under some parameter values both high− and low−stress steady states exist; and the dynamics exhibit hysteresis. At very high levels of stress, innovation can result in a dissolution of social relations, and has a negative relationship with the rate of economic growth. JEL codes : O4; J28; C61 Keywords: innovation; work−related stress; social relationships UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-015 by W. Cowan, R. Cowan & P. Llerena - Over the twentieth century universities in the industrialized world have evolved from being "universities of culture" to "universities of innovation." Policy makers and universities themselves see their one of their major roles as supporting industrial innovation and thus economic growth. We argue that this rests on a mis−cconception of the nature of innovation and the value of universities. We argue that a more appropriate function for this institution is as the "university of reflection" where scholarship and truth−seeking are the ultimate goals. JEL codes: O31 O33 O38 Z0 Keywords: innovation; role of universities; university−industry relations UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-014 by A. Szirmai - Since 1950, there has been considerable diversity in developing country experiences. Some countries and some regions have experienced rapid growth and catch up, others have fallen behind. At a global level there is an increasing inequality of per capita incomes. However, within the framework of increasing inequality, some countries have experienced accelerated catch up. The speed of catch up in the successful countries is more rapid than in previous historical periods. This paper analyses the sources of success and failure in economic development in the post−war period. It applies a framework of proximate, intermediate and ultimate causality. Proximate factors refer to the directly quantifiable economic sources of growth, intermediate factors refer to demand and policies, ultimate sources refer to the deeper historical, cultural, geographic and institutional sources of development. Monocausal explanations of success and failure are rejected. However, amongst the various sources of growth, the paper places special emphasis on developing countries' ability to tap into global knowledge flows. There is not a single example of successful catch up since 1868 which did not involve tapping into international technology. The extent to which countries can profit from international technology flows depends on their absorptive capacities, technological capabilities and systems of innovation. Keywords: Catch Up, Economic Development, Economic Growth, Advantages of Backwardness, Absorptive Capacity JEL Codes: O11, O33, O43, O47, P52 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-013 by S. Ramani - Sanitation is at the heart of not only environmental security but also food security and health. Today about 41% of the global population or about 2.6 billion people do not have access to toilets and about 42,000 people die every week due to drinking water polluted with faecal matter. The problem is most acute in India, China, many countries of Africa and a few countries of Latin America. Why is there such a crisis in the toilets market? How much of the present problem is due to a lack of supply and how much is it due to a lack of demand? What is the optimal role of the State, the firms and the NPOs? The present paper attempts to give some insight on the above questions through the case study of the market for toilets for the poor in India. It examines the toilet history and achievements of India, the innovations in the market for toilets targeting the group at the bottom of the income pyramid and the factors that influence the adoption and usage of toilets in an Indian coastal village, in order to infer answers to the above questions. Key Words: Toilets, BOP group, Innovation, India UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-012 by A. Hall - The emergence of a globalised knowledge economy, and the contemporary views of innovation capacity that this trend enables and informs, provides a new context in which development assistance to agricultural research and development needs to be considered. The main argument in this paper, which focuses on The Netherlands, is that development assistance should use this emerging scenario to identify niches where inputs can add value to the R&D investments of others, particularly in activities that help wire up innovation systems, linking R&D to other activities and actors in society. The paper outlines four agricultural innovation priorities and guiding principles for development assistance that could help strengthen national and global innovation capacity. These trends also raise many tensions and dilemmas for the development research community in Northern countries. A key message of this paper is that these tensions could be better handled if a long−term vision for development assistance to ST&I − which recognised the contingencies of the global knowledge economy and the importance of participation in the resolution of international issues that affect all countries − were in place. The paper concludes by suggesting that national development assistance policies on ST&I cannot be thought of separately from a country's general ST&I policy as participation in the resolution of international issues is a key element of a country's comparative advantage. This requires investments in expertise in the North and not just financial assistance to the South. Key words: global knowledge economy; development assistance; agricultural research; agricultural innovation; science technology and innovation policy; development research community; international development UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-011 by L. Borghans, A. Duckworth, J. Heckman & B. ter Weel - This paper explores the interface between personality psychology and economics. We examine the predictive power of personality and the stability of personality traits over the life cycle. We develop simple analytical frameworks for interpreting the evidence in personality psychology and suggest promising avenues for future research. Keywords: personality traits, lifecycle effects JEL Codes: I2, J24 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-010 by B. Lokshin, A. van Gils & E. Bauer - Recent interdisciplinary research suggests that customer and technological competencies have a direct, unconditional effect on firms' innovative performance. This study extends this stream of literature by considering the effect of organizational competencies. Results from a survey−research executed in the fast moving consumer goods industry suggest that firms that craft organizational competencies − such as improving team cohesiveness and providing slack time to foster creativity − do not directly improve their innovative performance. However, those firms that successfully combine customer, technological and organizational competencies will create more innovations that are new to the market. Keywords: Firm competencies; radical and incremental product innovation, team cohesiveness UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-009 by M. Srholec & B. Verspagen - The aim of the paper is to assess heterogeneity of the innovation process. Using exploratory factor analysis on micro data from the third Community Innovation Survey in 13 countries, we identify four factors that that can be interpreted as research, user, external and production ingredients of innovation. All too often it is assumed that the differences between the rates at which these factors are found in firms' innovation strategies can be accounted for by differences across sectors and/or countries. To put this proposition under scrutiny, we partition variability of the innovation process into components identified by the different levels. The analysis shows that sectors and countries matter to a certain extent, but far most of the variance is given by heterogeneity among firms within either sectors or countries. On the other hand, a grouping of firms produced by cluster analysis ac−counts for a much higher share of the variance, which implies that the most relevant contextual fac−tors cut across the established boundaries between sectors and countries. We discuss the implica−tions of these findings for the literature on national and sectoral systems of innovation, and for the way in which evolutionary economics has analyzed the role of selection. Keywords: Innovation, heterogeneity, sectoral systems of innovation, factor analysis, variance com−ponents analysis. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-008 by M. Goedhuys, N. Janz & P. Mohnen - Using firm level data from five countries − Brazil, Ecuador, South Africa, Tanzania and Bangladesh − this paper examines the knowledge−based determinants of productivity of firms active in food processing, textiles, and garments and leather products. In particular, it seeks to investigate the importance of various sources of knowledge in explaining productivity in the different industries. The knowledge sources driving productivity performance are very different across sectors. In food processing, firm productivity is most strongly affected by quality of management and foreign ownership linkages. In textiles, firms raise productivity levels by importing new machinery and through research and development. In garments and leather products, R&D and design activities, high quality management and licensing technology from foreign firms are significant productivity determinants. Firms' productivity levels are further depressed by regulatory and financial constraints. Keywords: productivity, knowledge, R&D, developing countries, food processing, textiles, garments, leather JEL classification: D24, L66, L67, O14, O31 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-007 by A. Tiwari, S. Schim van der Loeff, P. Mohnen & F. Palm - In this paper we examine the importance of financial and other obstacles to innovation in the Netherlands using statistical information from the CIS 3.5 innovation survey. We report results on the effect of these obstacles on the firms' decision to abandon, prematurely stop, seriously slow down, or not to start an innovative project. These results are compared with those from other studies in the Netherlands and other countries. We end with a discussion of policy measures that have been taken to overcome, or at least attenuate these obstacles, such as R&D tax incentives, venture capital financing and policy mix pakages. Keywords: Financial constraints, innovation, innovation policy JEL codes: O38 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-006 by M. Maliranta, P. Mohnen & P. Rouvinen - An employer−employee panel is used to study whether the movement of workers across firms is a channel of unintended diffusion of R&D−generated knowledge. Somewhat surprisingly, hiring workers from others' R&D labs to one's own does not seem to be a significant spillover channel. Hiring workers previously in R&D to one's non−R&D activities, however, boosts both productivity and profitability. This is interpreted as evidence that these workers transmit knowledge that can be readily copied and implemented without much additional R&D effort. JEL codes: D62, J24, J62, L25, O31. Keywords: Labor mobility, R&D spillovers, Profitability, Linked employer−employee data. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-005 by A. Hall, R. Sulaiman & P. Bezkorowajnyj - The exploration of fodder innovation capacity requires tools to undertake the following tasks: (i) Diagnosis of fodder innovation capacity to identify project starting points, including micro and macro elements (ii) Socio−economic benchmarking, and follow−up studies (iii) Pilot innovation cloud process learning/ process−driven intervention correction (iv) Comparative analysis of institutional change processes (iv) Project team process learning And (iv) Project evaluation. There is a wide range of existing tools available to investigate institutional change. This paper reviews these and recommends that an eclectic approach of mixing and matching tools to the emerging circumstances of the research is the best way forward. Key words: Institutional change; innovation systems; M&E; benchmarking; evaluation; learning UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-004 by A. Hall, R. Sulaiman & P. Bezkorowajnyj - This is the second in a series of three papers that develop a conceptual framework for a project on livestock fodder innovation. The paper begins by reviewing the evolving paradigms of agricultural research and innovation over the last 30 years or so and explains the emergence and relevance of the innovation systems concept to agricultural development. The paper then presents a framework for exploring fodder innovation capacity. This framework gives particular emphasis to the patterns of interaction needed for innovation and the policy and institutional settings needed to enable these processes. The paper concludes with some comments on the difficulties of measuring institutional change and the desirability of tracking institutional change and its relationship to welfare outcomes. Key words: livestock innovation systems; innovation capacity; institutional change; fodder; welfare outcomes; counterfactual; parallel universe; plausible causal connections UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-003 by R. Sulaiman, P. Bezkorowajnyj, A. Hall, M. Dhamankar & L. Prasad - This is the first in a series of three papers that develop a conceptual framework for a project on livestock fodder innovation. Livestock is important to the livelihoods of poor people in many regions of the developing world. A generic problem found across this diverse range of production and marketing contexts is the shortage of fodder. This paper argues that to address this problem it is necessary to frame the question of fodder shortage not from the perspective of information and technological scarcity, but from the perspective of capacity scarcity in relation to fodder innovation. To support this position the paper presents case studies of experience from an earlier fodder innovation project. These cases suggest that while fodder technology is important, it is not enough. There is a large institutional dimension to bringing about innovation, particularly with respect to the effectiveness of networks and alliances needed to put technology into use. Key words: Livestock; agriculture; innovation; poverty reduction; technology; partnerships; India; Nigeria UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-002 by L. Soete - This paper analyzes the impact of globalization on the allocation of public and private resources for research, knowledge creation and diffusion. We argue that while the concentration of research investments remains in a relatively small number of rich countries and regions, the focus of such activities is increasingly global. From this perspective the international business community is becoming increasingly concerned about the sustainability of its long term growth based on relatively low growth at the high end of the market in comparison to rising demand amongst lower income groups, located primarily in developing countries. Building on this analysis, the paper outlines a vision of innovation for development that could lead to a truly new research programme for innovation studies and the development of successful innovation−for−development strategies. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2008#wp2008-001