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Financing innovation and the role of Financing innovation and the role of implicit/explicit policies implicit/explicit policies

José Eduardo CassiolatoHelena Maria Martins Lastres

Research Network of Local Productive and Research Network of Local Productive and Innovative Systems RInnovative Systems RedeSist - edeSist - www.sinal.redesist.ie.ufrj.brwww.sinal.redesist.ie.ufrj.br

Federal University of Rio de Janeiro, Brazil

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Financing Innovation The role of implicit and explicit policies

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Research on systems of innovation (whether national or local) has focused on institutions, networks and interactive learning processes.

These systems however are tributary on sources of finance (Schumpeter).

The availability of finance not only for R&D stricto sensu, but also for long-term investment in equipment and facilities and the training of skilled personnel by firms, universities and research institutions, affects and condition their successes, determining their cohesion and longevity.

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By contrast, less attention has been paid to the conditions under which the key participants in systems of innovation – firms, governments and public bodies – will command the necessary finance allowing them to undertake long term innovation-related investment

Some exceptions: Christensen (1992) in the well-known Aalborg volume co-ordinated

by B-A. Lundvall; the OECD (1996) report written by J. Guinet, National Systems for

Financing Innovation. Financial activities ‘sub-system’ within Amable, Barré and Boyer’s

‘social systems of innovation and production’ (Amable & al., 1997); Chesnais and Sauviat (2003) in Cassiolato, Lastres and Maciel

(2003) Mary O’Sullivan in OHI (2005)

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Financing innovation in BRICSFinancing innovation in BRICS

Innovation Problems of cost and risk

How BRICS firms finance innovation? In Brazil

in our sample of 2000 SMEs less than 2% of firms use ANY financial institution to finance investment

In the Brazilian Innovation survey …

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Brazilian Innovation Survey – Sources of finance for R&D and Brazilian Innovation Survey – Sources of finance for R&D and other innovation activities used by innovative firmsother innovation activities used by innovative firms

20 40 60 80

100 120

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Priv

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Tota

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Ownsources

Third parties Ownsiurces

Third parties

R&D activities Other innovationactivities

2003 Extractiveindustries

2003 Tranasformationindustries

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ProposalProposal

Analyze the BRICS National Systems of Innovation in terms of their financial systems.

Main research question: Can financial institutions significantly affect the levels of and the changes in innovation development?

To discuss that, examine: Does the presence (or absence) of particular financial institutions

foster or impede long-term economic growth? One observes significant international differences in industrial

investment financing modes. What are the main differences and similarities among the BRICS in this matter?

Since particular forms of ownership and governance of firms – national or multinational - influence resource allocation and production performance, what roles do capital markets play in funding innovation among the BRICS?

A firm’s size is an important variable in the decision-making process of the financial institutions regarding credit allocation. What are the main differences and similarities among the BRICS in the way their financial systems finance large, medium and small firms?

The role of the public sector in financing innovation.

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MethodologyMethodology

Explore the understanding of compared development through case studies and the elaboration of indicators.

Country-specific case studies to deal with private and public financing issues on investment in innovation.

Seminars between the groups Interviews with researchers and

professionals of the financial market and of national public agencies and multilateral organizations acting in the area.

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The role of implicit and explicit The role of implicit and explicit policiespolicies

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Acceleration of financial globalizationAcceleration of financial globalization

Countries are more vulnerable, however well local IS may have been performing (Freeman, 2003) and have less degree of freedom to implement policies (Chesnais and Sauviat, 2003)

Therefore, the argument that a perspective that allows linking micro, meso and macro dimensions of competitiveness is also crucial for all countries and particularly for LDCs

LDCs are even more vulnerable:Important constraints to technological (and production)

development in these countries have included: macro-economic instabilities, hyper-inflation, high external debt and high interest rates

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Acceleration of financial globalizationAcceleration of financial globalization

LDCs are even more vulnerable: macro-economic policies have greater importance for

firm strategies towards technological change than specific industrial and innovation policies

That is why they have been called, since the 1970s in Latin America, ‘implicit’ industrial and technology policies (Herrera, 1971)

Coutinho, 2003, further elaborated this idea distinguishes benign from malignant macro-economic regimes, arguing that the latter heavily penalizes productive and innovative investments with harmful effects to domestic production and the competitiveness of the country

It is worth stressing that malignant macro-economic of this kind is a common feature among most LDCs

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A BRICS study on implicit policiesA BRICS study on implicit policies

Analyze the influence of the macroeconomic regime on the structure and development of NSIs in terms of

Indirect impacts how firms define their investment in S&T capabilities

within the overall investment portfolio How they affect State investment to develop and

maintain the NSI Direct impacts

on the efficacy and efficiency of the policies explicitly geared to develop the NSI

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MethodologyMethodology

Start with an the analysis of the main traits of the macroeconomic regime in each country: objectives operation of the regime consequences in terms of growth, openness of the

economy and investment funding. Interviews, complemented by data such as the evolution of

public expenditures for S&T&I. Interviews would also serve to study the relative

importance of the explicit S&T&I policies (e.g. fiscal and credit incentives) vis a vis the implicit policies contained in the macroeconomic regime.

Since BRICS is a comparative project it is necessary to control factors such as sector, propriety of the firms, size, etc., establishing interviews samples as similar as possible.