Working papers published by the United Nations University - Maastricht Economic and social Research and training centre on Innovation and Technology http://www.merit.unu.edu/publications/wp.php UNU-MERIT 2010 by E. Tacsir - The advance of knowledge−based societies has modified the labor mar− kets and qualification requirements. In this sense, and considering that individual choices about careers and occupations have pervasive social effects, there is a growing interest from both academics and policy makers in understanding and in uencing the process of education choice. Specifically, there is a worldwide renewed concern on achieving higher levels of graduation from scientific and technological disciplines. Available evidence shows that mobilizing individual wills towards these highly priority careers is not an easy nor mechanical task. Thus, it is necessary to expand the standard view about the process of occupation choice by adding non pecuniary factors, in uence of social networks and the role of information and guidance policies. With these objectives in mind, and after review− ing the theoretical literature about occupation choice in economics, the present paper analyzes the effects that diverse personal, family, social and economic aspects have in the selection of an university career. Based on the empirical ndings, some policy recommendations are put forward. JEL codes: J44, J48, J24, I21. Keywords: Occupational Choice, Professions, Public Policy. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2010#wp2010-013 by B. Hall & J. Lerner - Evidence on the “funding gap“ for investment innovation is surveyed. The focus is on financial market reasons for underinvestment that exist even when externality−induced underinvestment is absent. We conclude that while small and new innovative firms experience high costs of capital that are only partly mitigated by the presence of venture capital, the evidence for high costs of R&D capital for large firms is mixed. Neverthless, large established firms do appear to prefer internal funds for financing such investments and they manage their cash flow to ensure this. Evidence shows that there are limits to venture capital as a solution to the funding gap, especially in countries where public equity markets for VC exit are not highly developed. We conclude by suggesting areas for further research. Keywords: innovation, R&D, financing, liquidity constraints, venture capital, cash flow JEL codes: G24, G32, O32, O38 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2010#wp2010-012 by B. Hall, G. Thoma & S. Torrisi - We take a first look at financial patents at the European Patent Office (EPO). As is the case at the US Patent and Trademark Office (USPTO), the number of financial patents in Europe has increased significantly in parallel with significant changes in payment and financial systems. Scholars have argued that financial patents, like other business methods patents, have low value and are owned for strategic reasons rather than for protecting real inventions. We find that established firms in non−financial sectors with diversified patent portfolios own a large share of financial patents at the EPO. However, new specialized technology providers in the financial area also hold a number of such patents. Decisions on the financial patent applications take longer and they are more likely to be refused by the patent office, suggesting greater uncertainty over validity than for other patents. They are also more likely to be opposed, which is consistent with the fact that their other economic value indicators are higher. Keywords: market valuation, intangible assets, patents, software JEL No. G20,L86,O31,O34 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2010#wp2010-011 by B. Hall - Two court decisions in the 1990s are widely viewed as having opened the door to a flood of business method and financial patents at the US Patent and Trademark Office, and to have also impacted other patent offices around the world. A number of scholars, both legal and economic, have critiqued both the quality of these patents and the decisions themselves. This paper reviews the history of business method and financial patents briefly and then explores what economists know about the relationship between the patent system and innovation, in order to draw some tentative conclusions about their likely impact. It concludes by finding some consensus in the literature about the problems associated with this particular expansion of patentable subject matter, highlighting the remaining areas of disagreement, and reviewing the various policy recommendations. Keywords: intellectual property, State Street, software, internet; business methods, patents, innovation JEL No. G28,K2,L86,O34 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2010#wp2010-010 by T. Ziesemer - We provide regressions for the net immigration flows of developing countries. We show that (i) savings finance emigration and worker remittances serve to make staying rather than migrating possible; (ii) lagged dependent migration flows have a negative sign in the presence of migration stock variables; (iii) stocks of migrants in six OECD countries and in the developing countries have non−linear effects. Some of the non−linear effects vanish if indicators for disasters, conflicts and political instability are taken into account. JEL−code: F22, O15. Keywords: migration, remittances, disasters, conflicts, political instability. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2010#wp2010-009 by S. Athreye - It is commonly believed that the business environment in developing countries does not allow productive technology−based entrepreneurship to flourish. In this paper, we draw on the experience of Indian software firms where entrepreneurial growth has belied these predictions. This paper argues that the business models chosen by Indian firms were those that best aligned the country’s abundant labour resources and advantages to global demand. Many potentially higher value added opportunities struggled to attain success, but the qualitative value of experimental failures and the capability gaps they exposed was invaluable for collective managerial learning in the industry. Second, the paper also shows that the presence of growth opportunities and the success of firms stimulated institutional evolution to promote entrepreneurial growth. Last we show that the distinctive aggregate contribution of entrepreneurial firms was that they outperformed business houses and multinational subsidiaries in their more productive use of available capital resources whilst achieving similar levels of growth in output and employment. This paper draws upon an earlier shorter paper co−authored with Mike Hobday and titled ‘Overcoming Development Adversity: How Entrepreneurs Led Software Development in India’. Keywords: technology entrepreneurship, institutions and economic development, Indian software, intellectual property rights JEL classification: L26, L86, O10, 032, O34, I28 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2010#wp2010-008 by M. Bala Subrahmanya, M. Mathirajan & K. Krishnaswamy - This paper probes the drivers, dimensions, achievements, and outcomes of technological innovations carried out by SMEs in the auto components, electronics, and machine tool sectors of Bangalore in India. Further, it ascertains the growth rates of innovative SMEs vis−à−vis noninnovative SMEs in terms of sales turnover, employment, and investment. Thereafter, it probes the relationship between innovation and growth of SMEs by (i) estimating a correlation between innovation sales and sales growth, (ii) calculating innovation sales for high, medium, and low growth innovative SMEs and doing a one−way ANOVA, and (iii) ascertaining the influence of innovation sales, along with investment growth and employment growth on gross value−added growth by means of multiple regression analysis. The paper brings out substantial evidence to argue that innovations of SMEs contributed to their growth. Keywords: technological innovations, sales growth, auto components, electronics, machine tools, Bangalore JEL classification: L25, L26 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2010#wp2010-007 by B. Hall, J. Mairesse & P. Mohnen - We review the econometric literature on measuring the returns to R&D. The theoretical frameworks that have been used are outlined, followed by an extensive discussion of measurement and econometric issues that arise when estimating the models. We then provide a series of tables summarizing the major results that have been obtained and conclude with a presentation of R&D spillover returns measurement. In general, the private returns to R&D are strongly positive and somewhat higher than those for ordinary capital, while the social returns are even higher, although variable and imprecisely measured in many cases. JEL: O30, O37, C23, C81, D24 Keywords: returns to R&D, innovation, social returns, spillovers UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2010#wp2010-006 by J. Hagedoorn & N. Wang - The mixed picture of extant research on the relationship between internal and external R&D prompts us to ask such a question: under what conditions is there complementarity or substitutability between different R&D strategies? The goal of this paper is to contribute to the empirical literature by advancing and testing the contingency of the relationship between internal and external R&D strategies in shaping firms‘ innovative output. Using a panel sample of incumbent pharmaceutical firms covering the period 1986−2000, our empirical analysis suggests that the level of in−house R&D investments, which is characterized by decreasing marginal returns, is a contingency variable that critically influences the nature of the link between internal and external R&D strategies. In particular, internal R&D and external R&D, through either R&D alliances or R&D acquisitions, turn out to be complementary innovation activities at higher levels of in−house R&D investments, whereas at lower levels of in−house R&D efforts internal and external R&D are substitutive strategic options. These findings are robust to alternative specifications and estimation techniques, including a dynamic perspective on firm innovative performance. Key words: Complementarity; Substitutability; Internal R&D; External R&D; Innovative output; Pharmaceutical Industry; Biotechnology JEL codes: O32, L24 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2010#wp2010-005 by T. Ziesemer - We show that the credit crisis of OECD countries has a negative impact on the growth of the world economy according to an error correction model including China and Australia. This causes negative growth effects in poor developing countries. The reduced growth has a direct or indirect impact on the convergence issue, aid, remittances, labour force growth, investment and savings, net foreign debt, migration, tax revenues, public expenditure on education and literacy. We estimate dynamic equations of all these variables using dynamic panel data methods for a panel of countries with per capita income below $1200 (2000). The estimated equations are then integrated to a dynamic system of thirteen equations for thirteen variables that allows for highly non−linear baseline simulations for these open economies. Then we analyze the effects of transitional shocks as predicted by the international organizations for the OECD and world growth for 2008 and 2009. Whereas growth rates return to the baseline scenario until 2013 with overshooting for China and Australia, the level of the GDP per capita shows permanent effects, which are positive only for China. In the poor countries, investment, remittances, savings, tax revenues, public expenditure on education, all as a share of GDP as well as literacy and the GDP per capita, are reduced compared to the baseline until 2087 where our analysis ends. Investment, emigration and labour force growth start returning to baseline values between 2013 and 2017. GDP per capita and tax revenues start returning to baseline around 2040. Education variables do not return to baseline without additional effort. Significantly positive short−run effects (the lagged growth rates) show that China has an impact on Australia, which has an impact on the OECD, which in turn affects the rest of the world. ROW has a significantly positive feedback effect on China. JEL class.: F22, 24; G01, O15, J61. Keywords: crisis; migration; remittances; accumulation; developing country growth. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2010#wp2010-004 by M. Goedhuys & M. Srholec - National framework conditions mediate the effect of technological capabilities of firms on their productivity. Although this has been recognized in the literature for a long time, a quantitative test that explicitly considers this hypothesis has been lacking. Using a World Bank datasets of about 19,000 firms in 42 countries, most of which are developing, we estimate a multilevel production function with effects of firm’s technological capabilities nested in the national framework conditions. Our results confirm that various facets of firm’s technological capabilities and national economic, technological and institutional conditions influence total factor productivity of firms. Furthermore, we find that the effects of the national conditions and firm’s technological capabilities are closely intertwined with each other. Adherence to international standards, formal training of workers and access to technology through foreign ownership make more difference for productivity of firms in less developed countries, while R&D capabilities on the contrary boost significantly more performance of firms in countries at the technological frontier. Different features of the national framework are shown to be responsible for this. Keywords: Productivity, innovation, technological capability, institutions, multilevel modeling. JEL codes: C39, D24, O12, O14, O31, O43 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2010#wp2010-003 by F. Santiago−Rodriguez - This paper investigates the influence of human resource management on learning from internal and external sources of knowledge. Learning for innovation is a key ingredient of catching−up processes. The analysis builds on survey data about pharmaceutical firms in Mexico. Results show that the influence of human resource management is contingent on the knowledge flows and innovation goals pursued by the firm. Practices such as training−− particularly from external partners; and remuneration for performance are conducive to learning for innovation. Keywords: Learning; R&D; human resource management; pharmaceuticals; Mexico JEL codes: O31, O32, O54 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2010#wp2010-002 by A. van Zon & E. Mupela - In this paper we show the benefits of regional connectivity and specialization to growth. Starting with one region we show how welfare measured by utility per head increases as the number of connected regions increase. We assume a common connectivity infrastructure implemented by satellite, through which the ‘Great Connector’ (GC) is able to add new regions to the pool of connected regions by taking a tax form those already connected. We find that increasing production costs leads to faster transitions towards the steady state whereas increasing transportation and communication costs tends to lengthen the transition. The results point to reductions in transportation and communication costs in particular as a suitable vehicle to speed up growth. The results also show a strong positive effect of reductions in the cost of making new connections. This has a significant impact on both the steady state growth rate and on transitional growth, while significantly reducing the transition period. Key Words: Connectivity, Satellite, Growth, Specialization, Network JEL Classification: O25, 041, O43, O47, F15, F43 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2010#wp2010-001