Institutions, Innovations, and Growth
Tugrul Temel
Agricultural Economics and Rural Policy Group, Wageningen University
School of Economics, Inholland University
The Netherlands
July 2004, Sophia University, Tokyo
1
Plan of Presentation
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2
Research agenda
Case study
RESEARCH AGENDA
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3
Issue
Conceptual framework
Systems approach
A grand network of networks
Network performance indicators in growth
models
Develop hypotheses to address the issue
Issue
Why in some economies did a process of
technological innovation create new wealth
and economic growth, while in some other
economies the process remained
unaffected?
4
Conceptual Framework

Innovation system (IS)
–
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a set of agents that jointly/individually contribute to the
generation, diffusion, and use of improved or new knowledge and
that directly/indirectly influence the process of technological
change
Institutions (IPR, PPP) impact the performance of IS
and hence the process of technological change
–
–
K=K(IPR, PPP) : Institutional change affects the organization of K
T=T(K(IPR, PPP)) : Technological change and growth are
endogenous to IS
where technology (T), variable (R), intellectual property rights (IPR),
public-private partnerships (PPP), knowledge generation, diffusion,
application (K)
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Systems Approach
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A system
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An individual network
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optimizes its own objective subject to network-specific constraints
objectives of individual networks agree with the system goal
constraints of individual networks agree with the constraints of the
grand network
The grand network is greater than the sum of individual
networks.
–
6
is a grand network of networks
has a goal and optimizes it subject to system constraints
The grand network must have one new property, which individual
networks cannot support individually. For instance, the spatial
arrangement and size structure of individual trees in a forest will
create different habitats for wildlife species.
A Grand Innovation Network
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Institutions affect
network linkages
Learning through
interactions of networks
promotes innovations
Innovations yield growth
Economic
Interface
Social
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Policy
A Grand Innovation Network
Linkages in a Grand Network
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P
PE
PS
PI
EP
E
ES
EI
SP
SE
S
SI
IP
IE
IS
I
Innovation Network
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Knowledge generation
Knowledge diffusion
Knowledge application
Knowledge financing
Knowledge regulation
Institutions affect patterns of knowledge flow
Network Performance
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Performance measured by improvement in
the grand network goal
Hypotheses Development
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Describe the cause-effect structure of
individual networks
Develop hypotheses using this structure
Contribution of individual networks to the
grand network goal
Exogenous Growth Model
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The Solow-Swan model – K and L inputs
Emphasize the role of capital accumulation
Growth compatible with exogenous laboraugmenting technical progress
Growth is unexplained (the Solow residual or TFP)
Assumptions: productivity level and the rate of
technical change are the same across nations,
empirically not verifiable
Endogenous Growth Models
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Economics of ideas associated with increasing returns and imperfect
competition (high fixed cost and low marginal cost)
Relax the assumption of diminishing returns to capital
Technological progress endogenous to the model
Romer (1986) – R&D gives rise externalities that affect the stock of
knowledge available to firms
Production by firm-specific variables (like R&D) and a technology
index (learning by doing) which is a function of knowledge stock
available to firms.
Public-good characteristics of knowledge generating activities, ie, R&D
R&D based endogenous growth models model innovation (the
accumulation and diffusion of technological knowledge) as the driving
force of growth. Ideas are generated by R&D investment of firms
Evolutionary Growth Models
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Model technological advancement as a disequilibrium process
involving ex-ante uncertainty, path-dependency, long
adjustment processes.
Emphasize on strategic firm-specific capabilities rather than just
investment in human capital and R&D – R&D, managerial skills,
collective learning, social capital, networking, cooperation with
universities, property rights
The specific capabilities are dynamic being the result of
strategic decisions
Take into account the institutional framework – strengthen
institutions
As capacities are difficult to measure at the aggregate level, it is
also difficult to use this approach to measure growth
CASE STUDY
Agricultural Innovation System
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Policy units [P]
Research & extension organizations [R]
Agricultural banks [B]
Farmers & their organizations [F]
Input suppliers [I]
Marketing firms [M]
Processing firms [Pr]
Consultancy firms [C]
NGOs, Donors, Int’l organizations [X]
Analysis of AIS
•
•
Introduce a graph-theoretic method to assess
organizational linkages in a system
Apply the method to examine the agricultural
innovation system of Azerbaijan.
i.
ii.
iii.
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Map organizational links in the innovation system
Describe the structure of the system (identify leverage
points, dominant, and subordinate organizations)
Suggest ways to improve the workings of the system
Data and Methodology
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Data collected by structured interviews
A systems methodology is adopted because
i.
ii.
•
•
Seven graph theoretical concepts are used to
identify cause-effect pathways in the system
Who and where to use the method
i.
ii.
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interaction is essential to diffuse knowledge
learning takes place everywhere in society
to assess the impact of alternative interaction pathways
on the system goal
to identify the constraints of and opportunities for the
system to be effective
Mapping organizational links
Linkage Matrix described by
three types of linkages: formal (f), informal (i), and mixed
(m)
four levels of linkage strengths: strong (s), medium (m),
weak (w), none (n), and
five groups of linkage mechanisms: planning and review,
program activities, resource use, information, & training.
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Linkage Matrix
 P

 fw
 fw

 fw
 fm1

 fm
 im 1

 im 1
 1
 fm
19
fw
fw
fw
mw
0
0
0
R
fw
0
mw
mm
im
im 1
fw
E
0
0
0
iw
im
0
0
C
0
0
0
0
fm1
0
0
I
0
fm1
fm1
im
0
0
0
M
mm1
0
im 1
iw1
0
0
mw1
F
0
im 1
mm1
0
fm1
iw
mm1
D
fw
0
0
fs1
mw
fm1
fm1
fm1 

fw1 
fw1 

fw 
fw1 

1
mw 
0 

1
fm 

X 
Mapping organizational links
Not fully identified, i.e. of a total of 72 relations, only 45 are
identified,
Density: 0.63 (= 45/72)
Flexible: of 45 relations, 25 formal, 11 informal, 9 mixed
All relations are formal and weak (fw) between the public
components, while relations are mixed and mostly medium
between the private components
Informal relations are common between the public and the
private components
X has relations with all the components in the AIS
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Describing the structure
Linkage Matrix: assign 0.3 to a weak, 0.6 to a medium,
and 1 to a strong relation and denote the resulting
matrix as S[Scaled]
Define the C-E coordinates implied by S[Scaled] and
scatter plot them in Figure 1
D is dominant (i.e source of influence),
R is highly interactive with the rest of the system, and is
followed by X, I, and F.
P is subordinate (i.e., sink of influence)
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S[Scaled]
 P
0.3

0.3

0.3
0.6

0.6
0.6

0.6
0.6

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0.3
0.3
0.3
0.3
0
0
0
R
0.3
0
0.3
0.6
0.6
0.6
0.3
E
0
0
0
0.3
0.6
0
0
C
0
0
0
0
0.6
0
0
I
0
0.6
0.6
0.6
0
0
0
M
0.6
0
0.6
0.3
0
0
0.3
F
0
0.6
0.6
0
0.6
0.3
0.6
D
0.3
0
0
1
0.3
0.6
0.6
0.6
0.3
0.3

0.3
0.3

0.3
0 

0.6
X 
Cause-effect Diagram
Figure 1. The cause-effect structure of S[Scaled]
4
P
F
R
3
Effect
X
D
I
2
E
M
1
C
0
0
1
2
Cause
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3
4
Describing the structure and developing
hypotheses
Use only those linkages established through 5 types of
linkage mechanisms and denote the resulting matrix
as S[Mechanism]
Define the C-E coordinates of S[Mechanism] and
scatter plot them in Figure 2
D remains to be dominant, which is followed by I.
X is the most interactive, followed by F.
P remains to be the most subordinate component
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Key conclusions
1.
The public component is under construction.
lacking sectoral priorities, clear organizational mandates and
objectives, qualified human resources, physical and financial
resources, and motivation to initiate interactions with the
private sector.
2.
3.
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The private component is attracted to activities of
international organizations.
The public and private components are isolated and
have limited basis for interaction.
Future research
1.
2.
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Analysis of cases in which rare but influential
interactions take place between the organizations
The systems approach should be reformulated as a
mathematical model to allow testing of specific
hypotheses.