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According to a large body of historic and economic research, the investments made by countries to acquire and adapt technology developed abroad have played a critical role in accelerating output growth and the catch-up process. There is also evidence that productivity can be raised by stimulating the exchange of knowledge and technologies among firms, and between firms and public research organizations. However, private investments in technology acquisition and the formation of knowledge networks do not occur automatically, or even easily: the requisite expertise, resources, and environment need to be present for firms to have the incentives and capacity to successfully access and manage the information about global opportunities for increasing competitiveness, as well as to take irreversible investment decisions based on this information.
It is therefore essential for policymakers to discuss the nexus between: available knowledge resources such as human capital, fixed plant and machinery, physical and information infrastructures; the demand for knowledge and technology by the private sector, which itself depends on e.g. competitive pressures and the general business investment climate; and government institutions and support measures affecting the introduction and use of knowledge-based technology in firms. The incentives to invest in technology acquisition will be shaped by a combination of all these factors, which implies that a greater awareness of the conditions impinging in ECA countries is necessary to identify the most effective policy levers. The tradition of excellence in scientific training and research in ECA suggests that the catching-up process to OECD levels could be achieved by concentrating on bottlenecks for translating knowledge resources into increased productivity, taking advantage where possible of natural resource availabilities. In this respect, the policy dilemma facing ECA is different to most regions.
As part of this policy debate, it is important to recognize that technology acquisition is not divorced from innovation. On the contrary, the two are highly complementary activities, both from the point of view of firms that seek to upgrade their product lines and manufacturing technologies, and at the national level, owing to knowledge spillovers between competing firms in an industry and across sectors. The absorption of cutting edge technology inspires new ideas and innovations. Vice-versa, innovation leads to human capital generation and knowledge spillover effects that are associated with an increased absorptive capacity. Indeed, the distinction between the two investment activities rests upon the degree of uncertainty implied: innovation is generally understood as the development and commercialization of new unproven technologies and untested processes and products, which are therefore highly prone to failure; acquisition and absorption concern the application of proved and tested technologies, processes, and products in a new environment in they have not yet been tested and the markets and commercial applications are not fully known, which is considered a “safer bet”.
The two-way relationship between innovation and absorption is crucial from a policy perspective, as there has been a bias to concentrate science and technology policies on innovation. Instead, a holistic approach is required, which assumes that an improvement in the investment climate of a country is going to have a beneficial effect for both the acquisition of technology – through purchases of capital goods, and other channels – and the incentives to invest in innovation –to effectively adapt to new vintages of machinery and equipment, or in more costly pursuits to develop new technology in-house. In a context of budgetary restrictions, this holistic approach implies an allocation decision about whether to foster high-tech innovation, or more ordinary technology acquisition and knowledge networks. Taking these decisions requires more accurate information about the impact of such investments on productivity.

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