Building National and Regional Innovation Systems
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Building National and Regional Innovation Systems

Institutions for Economic Development

Jorge Niosi

Following the demise of the Washington Consensus, developing countries are looking for new ideas to guide their development. This innovative book suggests taking seriously some of the findings of evolutionary economics and paying specific attention to the institutions that matter for economic development, particularly those related to science, technology and innovation.
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Chapter 4: Building Blocks of Innovation

Jorge Niosi


All systems are composed of elements and relationships between these elements. Innovation systems are made of economic agents (different types of organizations with their routines) and links between them. This chapter looks at seven crucial building blocks of systems of innovation – human capital, academic institutions, government laboratories, horizontal policy, vertical policy, government investment, and absorptive capacity. As I did above, I distinguish here four types of institutions: independent organizations, practices of organizations (e.g., R&D, production, and marketing routines), institutions that represent the environment of organizational routines and shape the relationships between organizations, such as laws, public policies, and regulations, and other institutions. The four-class typology presents an advantage, because public policies usually are independent variables that determine organizational routines. For instance, tax credits or direct subsidies for R&D may trigger new R&D or innovation or innovation practices in private firms. It is convenient to distinguish between these kinds of institutions when our goal is to understand the development of innovation systems. The chapter also develops the concept of ‘absorptive capacity of nations’ – a notion that derives from Cohen and Levinthal (1990), Zahra and George (2002), and other scholars: institutions that support R&D increase a nation’s capacity to use existing technical knowledge. 4.1 HUMAN CAPITAL The relationship between human capital and economic development has generated an extensive and convincing literature. However, problems of definition and measurement have precluded precise estimation of the impact of human capital on economic development (Griliches, 1997; van Leeuwen, 2007). Three matters have...

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