Introduction: innovation, growth and development in Latin-America: stylized facts and a policy agenda.

SUMMARY

Many studies have shown that the long-term economic growth of industrialized economies stems from the enlargement of technological activities that lead to new products, processes or industries, as well as improving productivity. Some newly industrializing countries have achieved remarkable increases in innovative output in the last decades, suggesting that they have expanded their national technological capabilities. However, an unanswered question is how science and technology, which appear to be the key to industrial development in advanced economies, can be effectively used for economic and social development in today's developing countries.

To a large extent, this depends on the ability of these countries to build up a trajectory of learning and innovation. So far, such trajectories have mostly resulted by default, as an unplanned consequence of 'learning by doing' during the expansion of local production activities, or of 'adaptive engineering efforts' carried out on the basis of imported know-how. The real challenge therefore seems to be how to go from this to a 'pro-active' technological strategy that would put major innovation efforts and technological generation activities in the driver's seat of the development process.

This Introduction attempts three different objectives. Firstly, it sets the conceptual background for the papers included in this special issue. Secondly, it reports on recent research on innovation carried out in Latin America and suggests lines of future inquiry. Thirdly, it introduces the papers included in this special issue. For this purpose, Section 1 outlines some stylized facts of the Latin-American development process. Section 2 sketches out what we know and what we need to investigate more about innovation, growth and development in Latin America. Finally, in Section 3 we summarize the contribution of the papers included in this edition describing the current state of knowledge in this field with lessons for other developing economies.

KEY WORDS

innovation trajectory; productivity; skills development; learning-by-doing; adaptive engineering; technology trajectory; proactive strategy; economic development; Latin American case studies; policy agenda; developing economies

INTRODUCTION

There is a growing consensus about the centrality of scientific and technological advances in driving economic progress, and that increasing national investments in innovation are essential to ensure countries' economic growth (Schumpeter, 1942; Solow, 1956; Abramovitz, 1956 and 1986; Romer, 1990). In fact, technological and institutional change, and national technological capabilities are seen as major determinants of economic growth and economic development (Freeman, 1987; Fagerberg, 1988; Fagerberg, Mowery and Nelson, 2005).

Many studies have shown that the long-term economic growth of industrialized economies stems from the enlargement of technological activities that lead to new products, processes or industries, as well as improving productivity (Abramovitz, 1986). A number of new industrializing countries have achieved remarkable increases in innovative output in the last decades, suggesting that they have expanded their national technological capabilities (Lall, 2001; Hobday, 1995; Freeman, 1996).

However, an unanswered question is how science

and technology, which appear to be the

key to industrial development in advanced

economies, can be effectively used for economic

and social development in today's developing

countries.

To a large extent, this depends on the ability of these countries to build up a trajectory of learning and innovation. So far, such trajectories have mostly resulted by default, as an unplanned consequence of 'learning by doing ' during the expansion of local production activities, or of 'adaptive engineering efforts' carried out on the basis of imported know-how.

The real challenge therefore seems to be how to

go from this to a 'pro-active' technological

strategy that would put major innovation

efforts and technological generation activities

in the driver's seat of the development process.

It is clear that the structure of linkages at local, regional, national and international levels, and the construction of national systems of innovation contribute to success (Freeman, 1987; Lundvall, 1992; Nelson, 1993; Edquist, 1997; Kim, 1997; Niosi, 2000). However, this also requires a structure of incentives and a mix of policies to foster investments in innovation.

This Introduction attempts three different objectives. Firstly, it sets the conceptual background for the papers included in this special issue of Innovation: Management, Policy & Practice 'Innovation & Economic Development: Lessons from Latin America' (ISBN 0-9750436-5-X). Secondly, it reports on recent research on innovation carried out in Latin-America and suggests lines of future inquiry. Thirdly, it introduces the papers included in this special issue. For this purpose, Section 1 outlines some stylized facts of the Latin-American development process. Section 2 sketches out what we know and what we need to investigate more about innovation, growth and development in Latin-America. Finally, in Section 3 we summarize the contribution of the papers included in this edition describing the current state of knowledge in this field with lessons for other developing economies.

1. STYLIZED FACTS OF THE LATIN-AMERICA DEVELOPMENT PROCESS

As a result of market-oriented structural reforms implemented since the mid 1970s, and of the rapid process of globalization experienced by the world economy throughout the 1990s, many Latin-American nations are experiencing major changes in their production and social structure. These changes are strongly affecting almost every other aspect of each country's daily economic and institutional life, including the pattern of production specialization and insertion in world trade, the quantity and quality of the new jobs being created in the economy, the evolution of domestic technological capabilities and the equity with which the benefits of the transition to a more open and de-regulated policy regime are being distributed in society.

The expectation was that the transition from an 'inward-oriented' and 'State-led' growth strategy to one which was more 'outward-oriented' and 'market-led' was to be rewarded by a sustainable long-term improvement in the rate of economic expansion and productivity growth, as well as with a gradual 'convergence' to the income and productivity levels of more developed industrial nations. The competitive discipline imposed by a more open and de-regulated economic regime was considered by 'main stream' economists and policy makers as a sufficient condition for nations to achieve a more efficient pattern of resource allocation, faster innovation, better international competitiveness, more equity in the distribution of the benefits of technological progress, and a gradual closing up of the gap exhibited by developing countries vis a vis developed nations. So far, many of these issues have been poorly researched and demand urgent consideration from both the academic community and policy makers.

The research results indicate that such a priori expectation has been highly unrealistic. The emerging picture is one of success in some spheres (macroeconomic management) and failure in others (productivity growth, enhanced domestic technological capabilities, better insertion in world markets, and more equitable pattern of income distribution). Table 1 shows the evolution of some aggregate data over the last five decades. As can be seen, Latin-American economies are today much more stable and more export-oriented than during the inward-oriented industrialization period. Market-oriented reforms have helped Latin-American nations to control various critical cases of macroeconomic mismanagement, and even a few extreme episodes of hyper-inflation. It is also true that such reforms have been successful in making nations more open to trade and to external competition.

But we find a much less satisfactory picture when we turn to GDP growth, productivity improvements and equity considerations (Table 1).

It could be argued, however, that the figures in Table 1 are much too aggregated and that they do not reflect accurately the actual picture of growth and transformation at the micro and meso levels. They may also not reflect major changes that occurred in the institutional and regulatory spheres of each and every country in the region. In order to answer such concerns, we need a closer examination of the new production, institutional and regulatory fabric of each Latin-American society. Only by looking in more detail at the micro and meso levels can we get a more adequate perception as to how far the process of transformation has proceeded in each country and which sectors, regions and firms have been able to adapt better to the new rules of the game during the course of the last decade. A more detailed look at the stylized facts of Latin-American evolution is presented below.

Changes in the patterns of production specialization and trade