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Knowledge in the Development of Economies

Institutional Choices Under Globalisation

Edited by Silvia Sacchetti and Roger Sugden

This innovative book offers a critical perspective on the state of the current global economy, making sense of knowledge-related issues by critically assessing existing institutional choices, as well as pointing to new ways forward.
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Chapter 2: The Organisation of Production and the Risk of Regional Divergence: A Perspective on the Development of Knowledge Across Economies

Silvia Sacchetti


1 Silvia Sacchetti INTRODUCTION 1. In developed countries the speed of technological change is rapid and the diffusion of new knowledge is facilitated by high educational levels and production competencies. In developing countries a consistent part of the population is illiterate, domestic development of scientific and technical knowledge is absent or proceeds very slowly. Transnational corporations organise their production across nations and, ‘on the surface . . . [they] would seem to be ideal vehicles for helping underdeveloped countries’ to improve their relative position with respect to industrialised countries’ (Hymer et al., 1966, p. 275). Yet they are playing only a minor role as far as knowledge accumulation in developing countries is concerned. The volume of investments in innovative-related activities performed in developing countries has increased marginally (Patel and Pavitt, 2000). Productivity, which is an indicator of the effects of technological transfer and learning, has not increased consistently across countries and industrial sectors. It has been shown that transnationals stimulate domestic firms to become more productive only in sectors where best practices are consistent with their existing competencies and capabilities (Blömstrom, 1986), ‘but that there are no significant transfers of modern technologies’ (Blömstrom and Kokko, 2002, p. 13). Moreover as Hymer observed (Hymer, 1970), foreign affiliates, sometimes operate in ‘enclaves’: inside, modern technologies and products manufactured for foreign markets have not much in common with the backwardness of the external environment. Under these circumstances, spillovers of knowledge and fertilisation of domestic firms through learning do not take place (Kokko, 1994). The...

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