MERIT-Infonomics Research Memorandum series A novel approach to national technological accumulation and absorptive capacity: Aggregating Cohen and Levinthal

A novel approach to national technological accumulation and absorptive capacity: Aggregating Cohen and Levinthal The paper develops a more precise specification and understanding of the process of national-level knowledge accumulation and absorptive capabilities by applying the reasoning and evidence from the firm-level analysis pioneered by Cohen and Levinthal (1989, 1990). In doing so, we acknowledge that significant cross-border effects due to the role of both inward and outward FDI exist and that assimilation of foreign knowledge is not only confined to catching-up economies but is also carried out by countries at the frontier-sharing phase. We postulate a non-linear relationship between national absorptive capacity and the technological gap, due to the effects of the cumulative nature of the learning process and the increase complexity of external knowledge as the country approaches the technological frontier. We argue that national absorptive capacity and the accumulation of knowledge stock are simultaneously determined. This implies that different phases of technological development require different strategies. During the catching-up phase, knowledge accumulation occurs predominately through the absorption of trade and/or inward FDI-related R&D spillovers. At the pre-frontier-sharing phase onwards, increases in the knowledge base occur largely through independent knowledge creation and actively accessing foreign-located technological spillovers, inter alia through outward FDI-related R&D, joint ventures and strategic alliances. 1 Introduction A considerable literature has evolved over the past three decades evaluating the potential of laggard 'economic units' (be they countries or firms) to catch up and converge with economic units at the frontier. From the perspective of countries, it has been argued that catching-up countries have the potential to grow at a faster rate than leader countries because they can exploit a backlog of existing knowledge developed elsewhere. This potential is regarded as being dependent on, inter alia, the existence of endowment of natural resources, an adequate national social capability and technological congruence (Abramovitz 1986). The concept of social capability, first introduced by Ohkawa and Rosovsky (1973), has generated considerable debate and analysis, because it incorporates a wide variety of issues, including the adequacy of political, financial, educational, and economic systems, all of which influence the country growth rate. Indeed, Abramovitz (1995) distinguished between two classes of elements. One class includes the " basic social attitudes and political institutions " , the other consists of elements that determine the ability of countries to efficiently absorb and internalise knowledge potentially available at the frontier, i.e., from the lead countries. …