Learning from the book:
Impact of public policy instruments on supply and demand of innovation are conditioned by competition and contagion conditions the firms face. How much competition is appropriate to create an an optimal mix of invention, innovation and diffusion? One study quoted by the author says that an increase in competition leads to a significant increase in R&D investment by `neck and neck’ firms i.e firms that operate at the same technological level.However, increased competition decreases R&D investments by firms that are lagging behind, in particular if the time horizon is short. This explains Indian firms strong R&D in Pharma and weak R&D in electronic sector. Large technology gap discourages innovation efforts in the presence of import based competition.
The contagion effect (imitation potential) increases with large pools (supply) of knowledge to learn from and firms may undertake technological activity to benefit from these contagion effects. Innovative regions like Silicon valley create both competition and contagion effects. Firms in clusters often get locked into specific products and technologies and policies aim at bringing technological dynamism with global value chains. Location of MNC R&D centers in India is not only used for its low cost of operation but also for developing technologies for markets like India. Both for performing R&D and for solving research problems these MNC R&D centres seek more support from their global business units than local units thereby limiting knowledge spill over and contagion effect.
The challenge for the policymakers in the globalized world of open and distributed knowledge networks is the need to identify a policy package that can simultaneously facilitate international linkages for accessing knowledge, incentivize domestic intramural R&D to build absorptive as well as inventive capacity and help create domestic networks for knowledge accumulation and diffusion.
This book by eminent author provides theological inputs and conceptual clarity on contents of my book on `Demand side innovation policy'
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