Improving the absorptive technology capability of countriestheir ability to tap into the global technology poolis an important mechanism for accelerating industrial development, raising productivity of workers, and increasing economic growth.Trade flows, foreigndirect investment (FDI), research and development (R&D), and labor mobility and training are widely accepted as key mechanisms for knowledge absorption. Furthermore,the wealth of detailed information that patents and patent citations contain offer a useful window into the technological absorption process in Europe and Central Asia (ECA).While patents are indications of new-to-the-world innovation,much of this innovation is incremental, building closely on technical foundations developed in foreign countries.Patent citations connect ECA inventions to the prior foreign inventions upon which ECA inventions build, tracing pathways of international knowledge diffusion.
The process of knowledge absorption is neither automatic nor costless. It requires a favorable investment climate, as well good national education and research and development systems. This study analyzes the extent of knowledge and technology absorption for firms in ECA, as well as the factors that influence absorption, using statistical analyses of various data sources, including the World Bank Enterprise Surveys, patent databases maintained by the U.S. and European patent offices, and case studies.
1. Introduction
Akey driver of economic growth and industrial development is a countrys absorptive capacity, or ability to tap into the world technology pool. Trade flows, foreigndirect investment (FDI), and labor mobility and training are among the best conduits for knowledge absorption. But such transfers are not automatic. They also requirea favorable investment climate, an educated workforce, and, not infrequently, some research and development (R&D) on the part of the absorbing country. This study providesan analysis of the extent of knowledge and technology absorption by firms in Europe and Central Asia (ECA), based on the statistical analyses of various data sources, including World Bank Enterprise Surveys and the patent databases maintained by the United States and European patent offices, as well as original case studies.
2. Patents as Indicators of Technological Activity in the ECA Region
Our study takes as its primary focus the absorption of technology by ECA enterprises, rather than the creation of fundamental new technology. The reason for this focus is clear. Many ECA firms and industries lag well behind the global technological frontier, and relatively few ECA firms or industries are so technologically sophisticated that they could expect to play a leading role in the advancement of that frontier, at least in the near term. Given the level of development of the regions economies, it is almost certainly more important for managerial effort and public policy to be more focused on convergence with the global frontier than on support of indigenous attempts at fundamental innovation. Nevertheless, as we have stressed throughout the report, technological absorption is not a passive process that proceeds automatically with no effort on the part of the absorbing firm. Rather, it is often the case that extensive, active efforts are required to take technology pioneered outside the region and adapt itin large and small waysto the economic circumstances of ECA countries. Once again, we invoke the Cohen-Levinthal notion of absorptive capacity: a firm must be engaged in an active process of learning about technologies in order to effectively absorb advances in these technologies by otherfirms. In some instances, the processes of modification and adaptation lead to innovations, often incremental in nature, dramatically increasing the value of the underlyingtechnology in an ECA context. There are industries, firms, and
3. The Links Among Knowledge Absorption, Trade, and FDI
Openness to foreign trade and investment is critical to the process of technological absorption and diffusion, not only for the competitive pressure that it exerts onmanagement and corporate governance, but also for the exposure to global best practices technology and management techniques that such openness provides to local firms. The contribution of international openness to growth has been evident since the first wave of globalization in 18701913.
4. How Does FDI via Company Acquisition Impact Technology Absorption? A Case Study of Serbian Enterprizes
The objective of this case study is to complement the findings from the econometric analysis of the BEEPS and patent surveys presented in the previous chapters. Those analyses provide evidence that multinationals contribute to indigenous technological improvement decisions and have played an increasing role in regional patenting activity, and the case study methods are used in this chapter to provide a richer dynamic perspective of the causal relations between FDI and absorption. The need to supplement econometric findings in this area of research has been raised, inter alia, by Howard Pack in his survey of econometric versus case study approaches to technology transfer.38
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