Financing innovation and the role of implicit/explicit policies

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Financing innovation and the role of
implicit/explicit policies

• José Eduardo Cassiolato
• Helena Maria Martins Lastres
• Research Network of Local Productive and
  Innovative Systems RedeSist - www.sinal.redesist.i
  e.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 RD
  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 Boyers social systems of innovation
  and production (Amable al., 1997)
• Chesnais and Sauviat (2003) in Cassiolato,
  Lastres and Maciel (2003)
• Mary OSullivan in OHI (2005)

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Financing 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 RD and other innovation activities used by
innovative firms
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Proposal

• 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 firms 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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Methodology

• 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 policies
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Acceleration 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 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 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 ST
  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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Methodology

• 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 STI.
• Interviews would also serve to study the relative
  importance of the explicit STI 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.