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The Innovation for Development Report 2009–2010 Papers

Augusto López-Claros
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 1.1 The Innovation Capacity Index: Factors, Policies, and Institutions Driving Country Innovation

Augusto López-Claros,
Founder EFD–Global Consulting Network
Yasmina N. Mata,
EFD–Global Consulting Network

Yasmina Mata
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 Summary


For summary and download link to full text of chapter, please click here » ICI



Mohsen Khalil
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 2.1 Enabling Innovative Entrepreneurship through Business Incubation

Mohsen A. Khalil,
Global Information and Communication
Technologies Department,
World Bank Group


Ellen Olafsen,
infoDev, Global Information and
Communication Technologies Department,
World Bank Group




Ellen Olafsen
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 Summary

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In their article “Enabling Innovation and Entrepreneurship through Business Incubation,” the authors demonstrate how a globally applied mechanism of “business incubation” is facilitating the creation of an innovation and entrepreneurship ecosystem that encourages entrepreneurs who are willing and eager to take the risk of bringing new ideas to the market, and helps them turn the potential of their ideas and ambitions into real social and economic value. Basing their research on the international network of infoDev, they provide the reader with examples of a wide range of innovations in products, services and business models which have been brought to market by developing country entrepreneurs: from biogas cooking stoves in Rwanda, to improved honey production methods in the Ukraine, to improved bus services through telephony and tracking in Brazil. They discuss in some detail the various methods countries can use to spur innovation domestically and adapt imported innovations, in order to couple such innovations with viable entrepreneurship. In addition to the more commonly encountered factors which foster innovation, they stress an often-overlooked characteristic called “cultural capital,” which refers to the level of tolerance for risk and the interpersonal trust that exists in a given society, affecting both decisions to start a business and the entrepreneur’s ability to grow it. The authors describe the intricate web of interactions making up the innovation “ecosystem” and the linkages between all stakeholders in the system. They then illustrate how business incubators assist early-stage enterprises to become competitive and grow by interacting with all the actors in the ecosystem, either directly or indirectly through the enterprises they serve, and help them to meet the challenges their clients face, whether related to regulations, finance, labor, or infrastructure.


Josh Lerner
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 2.2 The US Patent System: Does It Strengthen or Weaken Innovation and Progress?

Josh Lerner,
Jacob H. Schiff Professor
of Investment Banking,
Harvard University

Adam B. Jaffe,
Fred C. Hecht Professor in Economics,
Dean of the Faculty of Arts and Sciences,
Brandeis University


Adam Jaffe
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 Summary

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In their article “The US Patent System: Does It Strengthen or Weaken Innovation and Progress?” authors Lerner and Jaffe ask the critical question: whether it strengthens or weakens innovation and progress. In order for technological innovation to create broad social benefits, to enable us “to live differently from our grandparents,” institutions must create incentives for individuals and firms to invest money in a financially rewarding process. After a brief excursion into the history of the “passionate debates” over patenting in Britain and the Netherlands, the authors describe the workings of the US Patent Office (PTO), the process by which patent applications are examined for utility, novelty, and non-obviousness, and, how, if granted, patents are intended to ensure intellectual property rights and protect inventors from the risks of infringement. They then outline three ways in which patents fail to protect and how they are wielded to retard innovation. By analyzing the 60 largest countries (by total economic activity) in 2000, they show how patent systems changed from 1859 to 1990, significantly constraining the discretion of government officials, increasing the length of patent shelf life, but not solving the universal dilemma of patent validity. Changes to US patent law and policy between 1982 and 1990 have resulted in a decline in rigor with which the standards of novelty and nonobviousness are applied, pushing under-qualified, underpaid, and overworked examiners, using “flawed and obsolete tools” to resolve cases quickly. Coupled with the explosion in patent litigation, the deterioration in the examination standards of the overworked PTO has resulted in thousands of noxious “patent weeds” which threaten the innovation garden. The authors end with concrete recommendations for reform, with the aim of achieving a better balance between rapid approval of good applications and reliable rejection of bad ones, without dramatically increasing expenditures.


Alan Hughes
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 2.3 Innovation Policy as Cargo Cult: Myth and Reality in Knowledge-Led Productivity Growth

Alan Hughes,
Margaret Thatcher Professor of Enterprise Studies,
Judge Business School;
Director, Centre for Business Research,
University of Cambridge



 Summary

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In his article “Innovation Policy as Cargo Cult: Myth and Reality in Knowledge-Led Productivity Growth,” author Alan Hughes compares the mid-20th century Melanesian “cargo cults” to the danger he perceives that the evolution of innovation policy structures which copy perceived cultural and structural characteristics of the US innovation system will also fail to deliver the “goods,” viz. economic well-being through improved productivity. Hughes describes these “ritual structures” as increased R&D expenditure, the commercialization of science, and the promotion of an entrepreneurial culture based on the subsidization of risk-taking in venture capital investment. In questioning the emphasis on R&D-intensive high-technology spin-offs, he contends that they have been exaggerated to the neglect of other key factors in the innovation system which must be considered. After considering these factors (e.g., diffusion and use of ICT as a generalpurpose technology, the role of performance transformation of existing firms as compared to new entrants in driving productivity, and the role of universities in the creation of human capital, role of public procurement policy, among others), he concludes by arguing that the crafting of any specific national innovation policy requires a careful consideration of its own structural features and particular opportunities and challenges. In order for the innovation “cargo” to be delivered, space must be created in institutional mechanisms for the practical utilization of scientific advances, focused problem solving, and the recognition and potential exploitation of commercial opportunities.


Ester Basri
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 2.4 International Mobility of the Highly Skilled: Impact and Policy Approaches

Ester Basri,
Science and Technology Policy Division,
OECD Directorate for Science, Technology
and Industry

Sarah Box,
Science and Technology Policy Division,
OECD Directorate for Science, Technology
and Industry


Sarah Box
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 Summary

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In their chapter entitled “International Mobility of the Highly Skilled: Impact and Policy Approaches,” Sarah Box and Ester Basri discuss the international mobility of highly skilled people, with a particular focus on “human resources for science and technology” (HRST), the group of skilled individuals, such as scientists, engineers, and researchers, who play an important role in stimulating innovative activity. The mobility of such skilled people, including human resources in science and technology, has become a central aspect of globalization, with talented migrants playing an important role in shaping the skilled labor forces of many countries and influencing the creation and diffusion of knowledge. The authors present selected data to describe the broad patterns of mobility of highly skilled people, the importance of mobility for the transfer of knowledge, the effects on receiving and sending countries, focusing in particular on the potential impacts of “brain gain,” “brain circulation,” and the diaspora. Finally, they outline the policy responses of selected OECD countries regarding mobility of HRST. Their central message is that mobility of the highly skilled has the potential to benefit the migrant, the receiving country, and the sending country, but that the policy environment plays an important role in whether this mobility can lift innovative performance. The evidence on return migration and brain circulation, beneficial brain drain and diasporas suggests that there are a variety of mechanisms by which migrants can continue to contribute to knowledge creation and innovation in their home countries.


Anil Gupta
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 2.5 Grassroots Green Innovations for Inclusive, Sustainable Development

Anil K. Gupta,
Indian Institute of Management,
Ahmedabad National Innovation Foundation


 Summary

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“Grassroots Green Innovations for Inclusive Sustainable Development,” the title of the article by Anil K. Gupta, is an exploration of open, user-driven innovation, as exemplified by individuals in India. Long reliant on internal R&D for innovation, large companies are often constrained in their ability to identify and meet the needs of what he calls “excluded clients.” The ability of corporations to influence the lives of common people with a variety of products and services has not increased in the recent past. The author presents the model of the “Honey Bee Network,” which offers new thinking to help the formal sector learn from grassroots innovators and traditional knowledge-holders, enabling them to solve problems in an affordable, accountable, and accessible manner. Using intriguing examples of grassroots innovations by users—a bicycle that generates energy from bumpy roads, a peanut pod-collecting device, an organic pesticide, and more—the author stresses the importance of reorganizing consumption and production relationships, minimizing investment in wasteful packaging, creating frugal design and development processes, allowing communities to take creative ownership in order to solve serious local problems, creating global markets of grassroots products, and redesigning supply chains. Gupta stresses the importance of including grassroots innovators in the benefits of their creativity when products are marketed, and giving them full credit for their work, through patenting andintellectual property rights.


Markus Haacker
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 2.6 Quantifying the Impact of ICTs on Growth in Developing Economies

Markus Haacker,
Honorary Lecturer at London School
of Hygiene and Tropical Medicine;
Consultant to the World Bank


 Summary

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“Quantifying the Impact of ICTs on Growth in Developing Economies” is the title of the article by Markus Haacker, in which he sets out to quantify the growth impact of technological advances in ICTs across the developing world. The author analyzes existing data on the production of ICT equipment, and builds a dataset covering the absorption of ICT equipment in a cross-section of developing economies. His analysis suggests that the direct growth impact of technological advances in the production of ICT equipment plays a subordinate role in the developing world. However, advances in ICTs do affect economic growth across the developing countries, as lower prices of ICT-equipment result in ICT-related capital deepening. Haacker finds that the growth impact of ICTs across the countries covered has increased from 0.19 percent annually in 1991–1995 to 0.26 percent annually in 2000–2006, and that there appears to be a greater growth impact in low-middle-income countries than in low-income countries, reflecting higher rates of ICT-related investment. He concludes that the sources of these growth increments are divided evenly between capital deepening related to IT and to communications equipment and that, while investment in communications equipment has been roughly twice as high as investment in IT equipment, the rate of technological progress regarding IT equipment has been higher.


Daniel Kaufmann
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 2.7 Good Governance for Sustained Growth and Development

Daniel Kaufmann,
Senior Fellow, Global Economy
and Development Program,
The Brookings Institution


 Summary

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The article “Good Governance for Sustained Growth and Development,” by Daniel Kaufmann, provides more solid evidence for judging the effects of governance on development, and the effectiveness of strategies to improve it. Kaufmann’s research disproves the common assumption that becoming rich is a precondition for a country to “afford good governance,” to have a competent government bureaucracy, sound rule of law, and an environment in which corruption is not condoned. Contrary to popular belief, he says, corruption is not the direct result of low income, and good governance is not a “luxury good.” His studies point to better governance as being the cause of higher economic growth and improved development, and not the reverse. By introducing the notion of “state capture” and “legal corruption,” the author explains why traditional definitions and views of the investment climate—usually focused on the public sector—have tended to underestimate the importance of governance factors and why they do not accurately reflect what enterprises themselves report as being of greatest significance for their operation. He ends his chapter by showing how moves toward transparency, gender equality, freedom of expression, and public participation result not only in better socio-economic and human development indicators, but in higher competitiveness, less corruption, and the fostering of a culture of innovation. Reforms in such areas have proven to be net savers of public resources, obviating the necessity for excessive regulations or rules. Kaufmann makes strong recommendations to the international aid community to rethink strategies and embrace more fully good governance approaches.


Alexander Ebner
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 2.8 Dynamics and Challenges of Innovation in Germany

Alexander Ebner,
Professor of Socio-Economics,
Johann Wolfgang Goethe University,
Frankfurt am Main, Germany

Florian A. Täube,
Assistant Professor of Growth Management,
Strascheg Institute of Innovation and Entrepreneurship, European Business School,
Oestrich-Winkel, Germany


Florian Täube
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 Summary

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In their article “Dynamics and Challenges of Innovation in Germany,” authors Alexander Ebner and Florian Täube analyze the historical underpinnings and current challenges facing innovation in Germany. They first review the conceptual frameworks for assessing innovation dynamism and survey the relevant institutional components of the German economy, discussing the trade regime, competition law, labor relations, the financial system, and entrepreneurship policies. They then highlight the basic features of the German innovation system, in particular pointing to factors such as education and training, R&D, and university-industry relations. From its renowned position as a “social market economy,” combining technological innovativeness, international openness, and industrial competitiveness with an extensive welfare system, Germany has become an institutional “hybrid” moving in the direction of greater entrepreneurial spirit. The innovation system, based in a rather bureaucratic, bank-dominated economy, has been seriously challenged by globalization, technological change, demographic pressures, persistent unemployment, and the burdens of reunification. They contend that the current situation requires an urgent institutional response, in the form of increased venture capital, high-growth stock markets, more flexible regulatory measures, the removal of hindrances to innovation in small and medium enterprises, and increased public support for R&D. According to Ebner and Täube, the German service sector lags behind in knowledge-intensive services to create employment in the current world economy and there is a significant lack of human capital in high-tech industries which could be addressed by creating more attractive conditions in the research and educational systems.


Andrew Stirling
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 2.9 From Enlightenment to Enablement: Opening up Choices for Innovation

Andrew Stirling,
Science Director at Science and
Technology Policy Research (SPRU),
University of Sussex



 Summary

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“From Enlightenment to Enablement: Opening up Choices for Innovation,” by Andrew Stirling, provides insight into the “knowledge society” and the widespread notion that scientific and technological progress is linear and cumulative, that every possible or feasible path will be realized. Rather, Stirling writes, “whether deliberately, blindly, or unconsciously,” societies pursue only a restricted subset of diverse possibilities, in which certain pathways for change are “closed down,” while others are “opened up.” The factors driving choice are determined by whether power is exercised deliberately and democratically, and whether public policy is open, inclusive, and accountable in dealing with links between technological risk, scientific uncertainty, social values, political priorities, and economic interests. Stirling analyzes the relationships between social and technological progress, on the one hand, and public participation and responsible precaution, on the other, and asks what are the most appropriate and practical ways, under different conditions, to “get the best out of specialist expertise,” while “engaging stakeholders, learning from different experiences, and empowering the least privileged groups in society.” Stirling analyzes the vulnerability of society from technology (biological, environmental, etc.), and its intriguing opposite: the risks for technology from society, such as when wise, feasible choices are foreclosed because of “market lock-in,” prejudice, or the needs, preferences, values, and interests of restricted groups. After a discussion of the governance of these vulnerabilities, the author examines some of the unfounded assumptions about knowledge itself: that every marketable innovation is socially acceptable, or that the knowledge responsible for an innovation also encompasses its consequences, and reminds us that even apparently complete knowledge may be indeterminate in its implications, that facts and values are not necessarily interdependent. The article ends with a description of the “precautionary principle” which acknowledges both the potential for irreversible harm and the impossibility of scientific certainty, and opens up “directions for choice.”


Simon Commander
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 2.10 How do Emerging Markets Innovate? Evidence from Brazil and India

Simon Commander,
Managing Partner of Altura Advisers;
Senior Adviser, European Bank for Reconstruction
and Development (EBRD), London


 Summary

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The article entitled “How Do Emerging Markets Innovate? Evidence from Brazil and India” by Simon Commander examines the productivity effects of ICT adoption and use in two of the emerging market economies, Brazil and India. The author takes off from the past studies on the varied productivity and growth consequences of ICT adoption across countries and regions and inquires into the factors behind such variation. ICT has been adopted and managed in different ways in different parts of the world, and, not surprisingly, associated organizational dimensions of the new technology appear to play an important role in explaining differences in outcomes. The author’s research, based on interviews with 1,000 manufacturing firms in the two countries, describes the factors explaining the pace of ICT adoption—including policy and financing constraints—and the consequences of that adoption. The results show that that there are differences not only in the timing of adoption and the patterns of ICT use across the two countries, but also within the countries themselves. Larger sized firms and foreign ownership tend to be associated with higher adoption, and in both countries, associated with a higher share of educated workers and a change in the skill mix. The Brazilian firms are shown, on average, to have adopted more ICT than their Indian counterparts, and to have used it more intensively. However, firms operating in Indian states with good institutional arrangements tend to have adoption rates similar to those in Brazil. There is clear evidence that high returns in productivity have resulted from investment in organizational change and improvement in the quality of infrastructure arrangements.


Laura Altinger
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 2.11 Technology and Innovation for Addressing Climate Change: Delivering on the Promise

Laura Altinger,
Economic Advisor, Office of the Director, Environment, Housing and Land Management Division at the United Nations Economic Commission for Europe (UNECE)



 Summary

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The chapter entitled “Technology and Innovation for Addressing Climate Change: Delivering on the Promise,” by Laura Altinger, first provides an overview of the current thinking about climate change and then an analysis of the promising role for innovation in global efforts to reduce greenhouse gases, in adapting technologies to decrease the vulnerability of those most likely to suffer the most serious impact of climate change, and in moving our economies onto green and sustainable growth trajectories. While key technologies already exist with great potential for limiting GHG emissions, leading up to 2050, the technologies that will be relied upon to make the substantial cuts in GHG emissions required to keep the planet safe will target energy efficiency in all key sectors: carbon capture and sequestration for power generation and industry, nuclear power, biofuels, wind, electric and plug-in vehicles, and hydrogen fuel cells. The author describes the roles to be played by the private sector in developing technologies, and by the public sector in addressing important market failures, using such mechanisms as carbon markets and regulatory regimes to provide investment incentives for alternative environmental technologies, to facilitate research, and ensure an adequate pool of human capital. She proposes that governments boost investment, supplemented by carbon taxes, in supportive infrastructure for new technologies or green fiscal stimulus spending aimed at environmental technology development. Finally, she discusses the importance of legally binding commitments to regulate countries already generating significant GHG emissions, improving risk management in smaller developing countries, removing barriers to trade and investment, and support by developed countries for the transfer of clean technology in regions of the world where it is most needed.


Hernán Rincón
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 2.12 Innovation and Social Development in Latin America

Hernán Rincón,
President, Microsoft Latin America


 Summary

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In his article “Innovation and Social Development in Latin America,” author Hernán Rincón shares his view of the current financial crisis and its effects on developing economies from the perspective of the CEO of Microsoft Latin America. He takes issue with the notion that “developing” necessarily implies moving from a low- to a high-income economic model, and to the idea that countries are going to return to the seemingly “stable” high-income regime that prevailed before the current crisis. For Rincón, economic development does not necessarily dovetail perfectly with economic growth—as measured by GDP—any more than GDP satisfactorily measures economic well-being. Referring to the current situation as a challenge of recalibration rather than recession, Rincón uses the example of the photographic industry which failed to foresee the onslaught of the digital camera, and stresses the critical importance of people-centered training, re-training, R&D, and IT applications in managing the shift to new business models. He points to the success of Brazil’s San Luis Digital project in providing an entire province with free wireless Internet access, and Mexico’s Housing Funds Institute, which gave partners access to instant messaging, video and audio conference capabilities, vastly simplifying communications, and increasing productivity. Rincón is optimistic that Latin America is now better positioned to face the downturn and adapt to new conditions, both because of the continent’s past experience in surviving severe economic, political, and social upheavals, and because of recent stronger economic policies which lowered inflation and interest rates, improved public finances, reduced external debt, and substantially increased foreign exchange reserves. Rincón concludes by describing Microsoft’s “Unlimited Potential” program to promote sustained social and economic opportunity for the world’s five billion people, who have yet to benefit from technological advances, by transforming education, fostering local innovation, and creating jobs and opportunities.

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Copyright © 2009
The Innovation for Development Report
Augusto López-Claros, Editor