Sectoral innovation systems in developing countries The case of ICT in India

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1、Sectoral Innovation System in Developing countries:The case of ICT in IndiaK J JosephCentre for Development Studies,Trivandrum, Kerla, Indiakjjosephcds.ac.inPaper Presented at the 5th Globelics International Conference20-23 September 2007 Saratov Russia Sectoral Innovation Systems in Developing coun

2、tries:The case of ICT in IndiaK J JosephCentre for Development Studies,Trivandrum, Kerla, Indiakjjosephcds.ac.inIntroductionLast two decades witnessed a major shift in the development strategy among developing countries. The change implied a move away from import substitution with a more activist ro

3、le for the state in almost sectors of the economy to an outward oriented strategy with prime role for the market forces. Initial impetus to such a shift presumably has been provided by the miraculous growth performance of South East Asian countries that was attributed to outward oriented policies an

4、d reduced role of government intervention. The process got accelerated with the formation of WTO wherein the developing countries, under various multilateral agreements apart from liberalizing their trade and investment regime, had to make various commitments that posed new challenges to the develop

5、ing countries in general. As a result, the outcome has not been very encouraging for many developing countries. While some countries like China, India and select South East Asian countries have managed to improve their growth performance, most of the countries in Latin America and Sub-Saharan Africa

6、 had to be contended with “lost decades” (Wade, 2004, Sanchez, 2003). The disenchantment with the development experience during the last two decades resulting from the unequal integration into the world economy has brought the issue of catch up - the process by which the gap in development with resp

7、ect the leading countries is reduced (Fagerberg and Godinho, 2005)- to the fore. However, on development deficit and catch up, we need not start from the scratch as we are endowed with a large number of studies in the innovation system perspective that identified various factors having bearing on an

8、 economys ability to catch up. The development experience of most countries also indicate that the catching up process is associated with the emergence and growth of some leading sectors that in turn contribute, both directly and indirectly, towards the development process (Malerba 2002). Therefore,

9、 in addressing the issue of catch up, which is quintessentially at the core of development problem, much could be learned by approaching the problem from a sectoral perspective. In this context it may be inspirational for other countries in the South that a developing country like India has acquired

10、 significant capabilities in Information Communication Technology sector (ICT) - the General Purpose Technology of the new millennium, instrumental in enhancing efficiency, competitiveness and growth in all economies and help achieving the millennium development goals by the developing countries - a

11、nd has immensely profited from its production and export. No wonder, many a developing countries and other sectors within India, are looking for plausible lessons for emulation. The point is further reinforced by the unprecedented increase in the number of bilateral cooperation agreements between In

12、dia and other developing countries in the recent past wherein the ICT component has been at the center stage.There is no claim that the experience of ICT sector in India is the only such episode in the developing world. There are many such sectoral instances from other developing countries (see Male

13、rba 2006) worthy of emulation and drawing valid inferences. Drawing lessons, effective emulation and implementation, however, are easier said than done, as we are not dealing with controlled experiments. More specifically we need to have a proper understanding of the process of innovation and produc

14、tion at the sectoral level with due focus on different elements, their manifold dimensions of successes and failures. However, process of learning, as well as the institutional arrangements that facilitate this process confronted by the developing countries is shown to have undergone major changes u

15、nder globalization (Nelson et al 2005 and Ernst and Lundval 2000). Given the complementary relation innovation systems at the national and sectoral level the new challenges confronted by the developing countries at the national level is likely to have its implications at the sectoral level as well.

16、There are also new opportunities opened up the inter alia by the spread of information technology and new international division of labour resulting from the changing organization of production at the global level. This paper, by highlighting the new challenges and opportunities faced by the sectora

17、l systems in developing countries argues that the extent of success that countries like India have achieved in sectors like ICT is crucially dependent on the innovation systems evolved over the years. The remainder of the paper is organized as follows. The second section presents the broad analytica

18、l framework by highlighting the new challenges and opportunities. The third section highlights the achievement and limits of Indias ICT experience followed by mapping the key elements of the sectoral system in Indias ICT sector in the fourth section with a view to explain the observed trends in sect

19、ion three. Concluding observations are presented in the last section. 2. Sectoral Systems in Developing Countries: New Challenges and OpportunitiesIn analysing the issue at hand, the sectoral system of innovation, built up on the evolutionary theory and the National Innovation System is eminently us

20、eful. The sectoral system framework, according to Malerba (2002, 2004) focuses on the nature, structure, organization and dynamics of innovation and production in sectors with following building blocks; actors, networks, institutions, demand and knowledge. In a recent paper Malerba (2006) also argue

21、s that the factors at the base of catch up may drastically differ across sectors. While crucial factor behind catch up in sectors like electronics in Taiwan has been learning and capabilities of domestic firms Amsden and Chu (2003) that has facilitated the movement along duplicative imitation to cre

22、ative imitation to innovation continuum, role of the government has been highlighted in case telecommunications in Brazil (Mani, 2004), software in India (Joseph 2002, 2006) and aircraft in Brazil (Dahlman and Frischtak 1993 and Viotti 2002). In several sectors, Mazzoleni and Nelson (2006) have show

23、n that universities and public research laboratories performed advanced research and trained advanced human capital, which were important as the experience of several countries indicate. The catch up process of countries in different sectoral systems has also been affected the specific types of netw

24、orks. In some sectoral systems like electronics, as argued by Lundvall (1993), vertical networks with suppliers have provided new inputs and shared relevant information for production and innovation, and led to learning and capability development by domestic firms. In the context of global productio

25、n networks, studies have also shown that specialization in different stages of the global value chain has been another way to catch up (Gereffi et al. 2005, Ernst, 2002, Morrison, Pietrobelli and Rabellotti, 2006). While the large and growing domestic demand has been relevant to catch up for most se

26、ctors in countries like China, the world market and export has played a major role in catch up in small or medium size countries. These differences as argued by Malerba (2006) has to be seen against the fact that sectors are not homogenous and are characterized by different technologies, actors, net

27、works and institutions. There is also evidence to suggest that within the same sectoral system, countries may exhibit differences in the factors that drive the catch up process. This is due to differences in national innovation systems, different specialization within sectors or within the global va

28、lue chain, presence of specific actors or to “historical accidents” with path dependent processes.These are important insights in understanding the sectoral dynamics in terms of their innovation and production process. However, from the perspective of developing countries, one needs to reckon with t

29、he new international environment in which they operate as well as the new development strategies being adopted by them at the instance of influential multilateral organisations. Since the context of the earlier episodes of catch up and therefore inferences drawn are significantly different from that

30、 of today, it may not be feasible to blindly fix the jigsaws together and even if one succeeds in fixing them the outcomes are likely to be different from those observed in the earlier catch episodes. Therefore, under the new disposition, the basic building blocks of the sectoral systems, as articul

31、ated by Malerba while remain in tact, might exert their influence in a way different from the earlier catch up episodes. To appreciate the present disposition in which the sectoral systems of innovation, so also the national systems, operate we shall focus on the two important issues that engaged ec

32、onomists in the post war period and explore how the approach to address these issues changed over the years. The first issue related to transforming the newly independent erstwhile colonies from their state of under development with low per capita income and low saving and investment capacity leadin

33、g to high incidence of poverty and illiteracy to development. The inquiries that followed gave birth to development economics. The second issue, following the path breaking finding by Abramovitz (1956) and Solow (1956) that over 50 per cent of the growth of output in the US economy between the end o

34、f the nineteenth century and the first part of the twentieth century cannot be reconciled with the growth of inputs, related to the search for the residual that could explain why growth rates differed among countries. While latter issue was posed in the context of developed countries, the answer to

35、this issue has had significant bearing on addressing the basic developmental problems confronted by the developing countries in general. The search for the residual and the related issues led to the birth of economics of innovation as a distinct area of enquiry in economics specializing not only in

36、the analysis of the effects of the introduction of new technologies, but also in understanding technological change as an endogenous process. Over the years, as argued by Antonelli (2007), four wide-ranging heuristic frameworks have evolved with clear focus. The classical legacies have made signific

37、ant contributions towards understanding the contribution of innovation and technological change to economic growth, mainly at the aggregate level. The induced approach to technological change and the role of learning constitute the core contributions of this line of analysis. The Schumpeterian legac

38、y led to the exploration of the relationships between innovation and competition with important implications for the theory of the firm and the theory of the markets. The Arrovian legacy has led to exploring the economics of knowledge and endogenous growth models pioneered by Romer (1986) and Lucas

39、(1988). Finally the innovation systems approach following the evolutionary perspective has paved the way to understanding the path dependent dynamics and systemic interdependencies that characterize technological and structural change.The received wisdom on the significance of technological change a

40、nd innovation in explaining growth notwithstanding, given the low level of per capita income, leading to low savings and investment, it was generally believed that faster rates of economic growth in developing countries necessitated big push or critical minimum effort (Leibenstein 1954; Nelson 1956

41、and others) by stepping up the levels of savings and investment. Economists however, differed in terms of the plausible strategies for achieving higher levels savings and investment while some argued for industrialization through import substitution, others stood for an export oriented growth path.

42、While most of the newly developed countries opted for the former strategy, a few adopted the latter recording better growth performance. The seventies marked the emergence of a large number of studies - Little, Scitovsky and Scott (1970), Balassa (1971), Kruger (1974) and Bhagwati (1978) - highlight

43、ing the efficiency losses associated with the import substituting industrialization. The success of the East Asian countries like South Korea was taken to indicate that the trade restricting, import-substituting policies have failed and should be replaced with trade oriented, export promoting polici

44、es. In a context wherein international trade has been generally perceived as an engine of growth, Arthur Lewis (1978) argued that the engine of growth should be technological change with international trade serving as lubricating oil and not as fuel. He further argued, international trade cannot sub

45、stitute for technological change, so those who depend on it as their major hope are doomed to frustration. Since the mid 1980s the concept National System of Innovation with its roots in the work of List (1841) evolved in the hands of Freeman (1987) Lundvall (1992) Nelson (1993) and others. The NSI

46、framework, deviated from the linear approach to technological progress, went beyond the narrow confines of product and process innovation in an evolutionary perspective with focus on interactive learning and innovation within an economy as key to economic development and welfare. It emphasizes inter

47、-dependence and non-linearity wherein institutions play the central role. NIS in a narrow perspective, in tune with the earlier analyses of national science systems and national technology policies (Nelson, 1993, Mowery and Oxley 1995), aimed at mapping indicators of national specialization and perf

48、ormance with respect to innovation, research and development efforts and science and technology organizations. The policy issues raised were almost exclusively in the realm of explicit S&T policy focusing on R&D. But the broader approach to NSI takes into account social institutions, macro economic

49、regulation, financial systems, education and communication infrastructures and market conditions as far as these have impact on learning and competence building process (Gu and Lundvall 2006). It provides a systemic perspective by linking the micro behaviour to the system level in a two-way directio

50、n. The changes at the system level is an outcome of the interactions at the micro level where as the system shapes the learning, innovation and competence building at the micro level. The evolutionary and the systemic perspective of innovation and development implicit in this framework is in contras

51、t to the conventional economic perspectives that focus on optimisation of resource allocation for growth in a static context. Thus viewed, an important contribution of the concept is towards building a powerful bridge between development economics and innovation studies in contrast to the endogenous

52、 growth models that linked technology and economic growth. Later conceptual advancements in terms of regional/local innovation systems in which the boundary is the region (Cooke et al.,1997), technological systems, in which the focus is on technologies and (Carlsson-Stankiewitz,1995; Hughes,1984; Ca

53、llon,1992), and sectoral systems of innovation (Malerba, 2002, Malerba 2004) have contributed towards further strengthening this bridge.Yet, inspired by the multilateral organizations, the last two decades of twentieth century witnessed the shift in policy pendulum in most developing countries towar

54、ds liberalized trade and investment regime wherein the need for building an innovation system seems to have not received the attention that it deserves For a detailed account of the experience of less developed countries like Cambodia, Laos and Myanmar see Joseph (2006) . The process got accelerated

55、 with the formation of WTO and various agreements that followed covering not only trade and investment that exposed the domestic sectors to external competition more than ever before but also other aspects like intellectual property, subsidies, government expenditure with crucial bearing on NIS and

56、also on the building blocks of the sectoral systems in these countries. Thus in a context wherein the multilateral organizations have emerged as powerful in influencing the domestic policies of developing countries the current and future development environment for countries and sectors trying to ca

57、tch up is different from what it has been, in a number of respects (Nelson et al 2005).With the removal of trade barriers the domestic firms, regardless of the sector in which they operate, are exposed to international competition and that the infant industry protection and government subsidies, bot

58、h direct and indirect, widespread in most of the earlier catch up episodes at best has very limited role today. The unprecedented exposure to international competition in turn has had their influence on their innovative behaviour and competitive strategies of local firms. This has been manifested in

59、 the increasing incidence of joint ventures and takeover of local firms by foreign firms. Similarly, the strong intellectual property right regime being imposed on the developing countries of toady entails an environment significantly different from the ones that was confronted earlier. Today there

60、is little scope for reverse engineering and duplicative imitation based innovation strategies widespread in the earlier regime. Also the role of university industry interaction that has had significant role in catch is likely to have limited role as there has been significant cut is social sector ex

61、penditure in a context wherein countries are forced to adhere to fiscal prudence by reducing their fiscal deficits. Under the new environment the observation by Abramovitz (1986) that countries that are technologically backward have a potentiality for generating growth more rapid than that of more a

62、dvanced countries may not be as applicable as it has been earlier. Hence any analysis of the sectoral system of innovation in the developing countries without due attention to these challenges is likely to depict a picture far from reality. At the same time, the developing countries also have access

63、 to new opportunities. In the context of heightened international competition MNCs have been forces to establish of global production networks, wherein they look for locations that supplement their core competence. This has opened up new opportunities for specialized suppliers with certain capabilit

64、y sets. The nature of outsourcing requirements have increased to include high-end services like product design, engineering and R&D (Ernst and Lundvall 2000). The whole process has been facilitated to a great extent by the spread of information technology. It has also been shown that ICT, by enhanci

65、ng both the incentives and possibilities for codifying knowledge (David and Foray 1995) could be instrumental in influencing catch up through its bearing on learning and competence building process. Though the local capabilities to use or the competence to access knowledge varies widely, the access

66、potential exists and that ICT brings to the forefront the enormous potential for catch up (Soete 2006). Soete also stressed the role of tacit knowledge and other competence elements in the capacity to access international codified knowledge. Ernst and Lundvall (2000) though underlined the complexity in