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 2009 by Z. Babutsidze - Abstract This paper presents a simple boundedly rational model of a rm and consumer behaviour. We formulate an entry game, where every firm decides on investing in R&D for inventing a new product that will appeal to certain group of consumers. The success depends on the amount of funds available for the project as well as rm's familiarity with the relevant proportion of taste space. We identify the section of parameter space where firms have an incentive to diversify. For these parameter constellations the model results in rich industrial dynamics. Equilibrium firm size distributions are heavy tailed and skewed to the right. The heaviness of the tail depends on one industry−level parameter. Key Words: R&D . Product innovation . Market knowledge . Firm size distribution JEL codes: C72 . D21 . L11 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-048 by M. Kanerva, A. Arundel & R. Kemp - Environmental innovation is an essential part of a knowledge based economy, as environmental innovation makes economies more efficient by encouraging and facilitating the use of fewer material or energy inputs per unit of output. In this respect, environmental innovation replaces material inputs with knowledge. Environmental innovation should also result in fewer externalities, or negative environmental impacts, which affect our health and well−being, also in terms of global climate change. Technology shifts caused by technological breakthroughs, rapid changes in demand for resources, or environmental imperatives could also impel societies to invest more heavily in research on how to use energy and other resources more efficiently. The main goal of this paper is to explore and identify relevant indicators for environmental innovation that could be used to develop innovation policy for all economic sectors, as well as for the field of environmental technologies. This is done firstly with the help of a qualitative model presenting the eco−innovation chain. Based on both literature and our data analysis, our chosen key indicators include measures on: environmental regulations and venture capital for the eco−industry; environmental publications, patents and business R&D; eco−industry exports and FDI; sales from environmentally beneficial innovation across sectors; and environmental impacts related to energy intensity and resource productivity of economies. Finding key eco−innovation indicators related to such factors is important for policy makers, as environmental innovation policy is required to counter the two market failures associated with environmental pollution and the innovation and diffusion of new technologies. Keywords: Environmental innovation; environmental goods and services; innovation indicators; CIS; environmental impacts; European Union JEL codes: O14, O30, O33, O38, Q51, Q55, Q58 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-047 by A. Hall & N. Clark - This paper explores the use of complex adaptive systems theory in development policy analysis using a case study drawn from recent events in Uganda. It documents the changes that took place in the farming system in Soroti district during an outbreak of African cassava mosaic virus disease (ACMVD) and the subsequent decline in cassava production – the main staple food in the area. Resultant adaptation impacts are analysed across cropping, biological, economic and social systems each of which operate as an interlinked sub−system. The policy implications of this story suggest a policy agenda that recognises adaptation capacity as the life blood of complex adaptive systems. Since these types of systems are found in all realms of human activity, it follows that strengthening this capacity is a key developmental priority that requires linking together new configurations of actors and resources to tackle an ever−changing set of contexts. Key Words: Complex Adaptive Systems, Innovation Policy, Uganda, Cassava, Adaptation Capacity, Smallholder Production, Policy Journal Codes: N57, O13, O31, Q16, Q18 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-046 by Z. Babutsidze & R. Cowan - We present a discrete choice model of consumption that incorporates two empirically validated aspects of consumer behaviour: inertia in consumption and interaction among consumers. We specify the interaction structure as a regular lattice with consumers interacting only with immediate neighbours. We investigate the equilibrium behaviour of the resulting system and show analytically that for a large range of initial conditions clustering in economic behaviour emerges and persists indefinitely. Short−run behaviour of the model is investigated numerically. This exercise indicates that equilibrium properties of the system can predict a short−run behaviour of the model quite accurately. Key Words: Clustering, Interaction, Habits, Consumer choice JEL codes: D11, D83, C65 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-045 by F. Chen & P. Mohnen - After joining the World Trade Organization (WTO), China witnessed a major inflow of Foreign Direct Investment (FDI). Many famous automobile firms of developed countries were attracted to invest in China to cooperate with domestic firms. This paper uses firm−level data of the Chinese automobile industry to analyze the determinants of, and the interrelationships between, innovation input and innovation output, and in particular whether FDI had any influence on these two aspects of innovation. A generalized tobit model will be estimated for both R&D and the share of innovative sales for 2002/2003 and 2005/2006. The findings show that FDI firms are less R&D intensive but, when they innovate in new products, they are more product innovative than domestic−funded firms. Keywords: FDI, China, R&D, innovation, automobile industry JEL codes: O14, L62, F21 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-044 by B. Droste−Franke, J. Krüger, S. Lingner & T. Ziesemer - Using the reaction of hydrogen with oxygen to water in order to produce electricity and heat, promises a high electrical efficiency even in small devices which can be installed close to the consumer. This approach seems to be an impressive idea to contribute to a viable future energy supply under the restrictions of climate change policy. Major reasons currently hampering the diffusion of such technologies for house energy supply in Germany are analysed in this paper. The barriers revealed, include high production costs as well as economic and legal obstacles for installing the devices so that they can be operated in competition to central power plants, beside others in tenancies. Keywords: fuel cell; diffusion process; valuation of environmental effects; technological innovation JEL classifications: K12,O33,Q51,Q55 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-043 by R. Cowan, N. Jonard & B. Sanditov - This paper presents an economic model of R&D network formation through the creation of strategic alliances. Firms are randomly endowed with knowledge elements. They base their alliance decisions purely on the technological fit of potential partners, ignoring social capital considerations and indirect benefits on the network. This is sufficient to generate equilibrium networks with the small world properties of observed alliance networks, namely short pairwise distances and local clustering. The equilibrium networks are more clustered than “comparable” random graphs, while they have similar characteristic path length. Two extreme regimes of competition are examined, to show that while the competition has a quantitative effect on the equilibrium networks (density is lower with competition), the small world features of the equilibrium networks are preserved. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-042 by Y. Zhang & S. Filippov - Since end of the 1990s, the world has been witnessing a phenomenon of internationalisation of Chinese companies. This internationalisation is often understood through FDI inflows, whereby multinational companies establish their presence in a form of subsidiaries overseas. However, lately many companies (and Chinese firms in particular) started to use strategic alliances and M&As as a pair of tools of internationalisation. Despite the growing body of literature on this topic in the context of advanced western economies, use of strategic alliances in the internationalisation of Chinese firms remains an under−researched topic. In the paper we investigate the potential benefits for Chinese companies to internationalise through strategic alliances and M&As, and specifically in comparison to the traditional forms of outward FDI. By using the data from Thomson SDC database, we specifically focus on the Single European market as a new prospective location for Chinese companies and provide a quantitative overview of Chinese firms’ alliances as well as M&As in Europe. To illustrate the optimal pattern of internalisation of Chinese firms in Europe, we additionally use a case study of Chinese automotive manufacturer Chery Automobile Co. Ltd. Keywords: strategic alliances, emerging economies, China, Europe, internationalisation JEL: F23, M10, L62, O3 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-041 by N. Engel - Innovation dynamics in Tuberculosis control in India: The shift to new partnerships Tuberculosis remains the biggest infectious killer in India and worldwide, and it has recently regained substantial international attention with its come−back in drug resistant forms. The environment, the disease and the societal response to it are changing and with it challenges and opportunities to control the disease. Innovation in a variety of areas such as improved diagnostic tests, drugs, delivery mechanisms, service processes, institutions and treatment regimes is needed in order to be able to respond to the changing public health challenge. Recent developments in the literature emphasize that innovation is a complex endeavour that includes processes of negotiation, learning and alignment amongst researchers, health practitioners, firms and public authorities. The ground level realities for innovation in countries such as India where TB is a social as much as a clinical problem are complicated with challenges and constraints inherent to the health and wider social system that hamper learning, experimenting and thus innovation. Based on preliminary results from qualitative fieldwork in India this paper will examine the innovation dynamics in one of the recent policy changes in TB control in India: the emergence of new partnerships between private medical providers, NGOs and the government. The paper traces where new ideas come from, how they make their way through the existing control structure and how the existing efforts to control TB respond to and cope with these new developments. The central argument is that the dynamics of innovation in a complex, conflicting and confusing setting like TB control can be understood as a continuous evolution of problems, promises and solutions. Keywords: Innovation dynamics, public−private mix, Tuberculosis, India JEL code classification: I18, O31, O38 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-040 by Y. Zhang - With China’s rapid economic growth in recent years, many Chinese firms especially in high−tech industries have started to technically lead in the international market. In this study, we aim to uncover the root causes that lead to Chinese firms’ catching up from network perspective. By taking Huawei Technologies Co. Ltd. as a case, we integrate absorptive capacity development and firm−level catching up into an alliances−based network framework. We found that network alliances with firms and universities complement each other at different catching up stages; and alliances−based network provides a springboard for Chinese firms to shorten catching up path. We argue that in Chinese context, impact of FDI on firms’ performance comes into effect only if partnership is carried out; alliances with universities facilitate development of absorptive capacity at an early stage; Partnering with leading players stimulate R&D investment at a late stage and simultaneously enhance firm’s innovation performance as well. Key words: Strategic alliances, Network, Chinese firms, absorptive capacity, catching up JEL Code: M13, O32, O19, L24 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-039 by R. Rivera, J. Sampedro, G. Dutrenit, J. Ekboir & A. Vera Cruz - This paper explores the effect of commercial farmers−academic researchers linkages on research productivity in fields related to agriculture. Using original data and econometric analysis, our findings show a positive and significant relationship between intensive linkages with a small number of commercial farmers and research productivity, when this is defined as publications in ISI journals. This evidence seems contrary to other contributions that argue that strong ties with the business sector reduce research productivity and distort the original purposes of university, i.e., conducting basic research and preparing highly−trained professionals. When research productivity is defined more broadly adding other types of research outputs, the relationship is also positive and significant confirming the argument that close ties between public research institutions and businesses foster the emergence of new ideas that can be translated into innovations with commercial and/or social value. Another important finding is that researchers in public institutions produce several types of research outputs; therefore, measuring research productivity only by published ISI papers misses important dimensions of research activities. Keywords: agriculture sector, research productivity, university−business sector interaction JEL codes: 031, 032, Q16, Q18 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-038 by S. Arora & B. Sanditov - We examine three theories of caste and community using new data on social networks among residents of a south Indian village. The first theory treats individual caste groups as separated communities driven by the Brahmanical ideology of hierarchy based on purity and pollution. The second theory departs from the first by placing kings and landlords at the centre of rural (primeval) social structure. Here ritual giving by kings provides the glue that holds a community together by transferring inauspiciousness to gift−recipients and ensuring community welfare. The third theory, that may be treated as a corollary of the second, argues that powerful leaders in the religious and political domains act as patrons of people in their constituencies and forge a sense of community. The resulting community may be single or multi−caste. Using a community structure algorithm from social network analysis, we divide the network of the village into thirteen tight−knit clusters. We find that no cluster or community in the social network has exactly the same boundaries as a caste group in the village. Barring three exceptions, all clusters are multi−caste. Our results are most consistent with the third theory: each cluster has a patron/leader who represents the interests of his constituency at village−level fora and bridges caste and community divides. Keywords: Social networks, culture, caste, social change, community development, rural India JEL codes: Z13, O10 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-037 by S. Arora & H. Romijn - This article criticises current BoP approaches for under−appreciating two issues that play vital roles in projects targeting the poor at the BoP: heterogeneity among the poor, and the intricacies of participatory partnerships between TNCs, the non−profit sector (NGOs) and local poor communities in the global south. Our main contention is that the extant BoP literature has a naïve view of what working with the poor really involves, which grossly underestimates adverse power relationships and disregards the hierarchies between the poor and outsiders who administer development interventions. To unpack the hidden complexities associated with heterogeneity and partnership dynamics, we draw on extensive knowledge from the field of development studies, which has accumulated key insights about working in and with poorer communities over several decades. Keywords: innovation and development, participation, poverty alleviation, TNCs JEL codes: I30, M14, O19, O31, O32, Z10 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-036 by R. Narula & J. Michel - There is a growing international dispersion of R&D activities by MNEs for the purposes of maintaining and augmenting their knowledge assets. Firms need to tap into alternative knowledge sources , as home countries are rarely able to meet all their technological needs. However, accessing to foreign knowledge implies integration with the host country innovation system that requires considerable time and resources. Although asset−augmenting activities are seen as primarily benefitting the MNE, we argue that home country innovation systems can also benefit from reverse knowledge transfer. Policy makers need to promote these linkages and flows, rather than seeing R&D internationalisation as a threat to the home economy. New knowledge developed abroad by firms can and should be encouraged to be transferred to the rest of the firm and to the local environment of the home country. Keywords: reverse knowledge transfer, R&D, innovation policy, EU JEL codes F23, O32, L22 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-035 by Y. Zhang, I. Rajabzadeh & R. Lauterbach - In this paper we empirically studied the relationship between network centrality and academic performance among a group of 47 PhD students from UNU−MERIT institute. We conducted an independent email survey and relied on social networks theory as well as standard econometric procedures to analyse the data. We found a significant reversed U−shaped relation between network centrality and students’ academic performance. We controlled our results by several node’s characteristics such as age, academic background, and research area. Additional evidence shows that there is a negative impact of age on academic performance at PhD student level. Contributions of this paper can refer to the input into studies that aim to explore peereffect. Also it contributes to the methodological approach by combining elements of network analysis and econometric theories. This study demonstrates that when evaluating the impact of network centrality on performance, there is no significant difference between various network centrality measurements. JEL : D85, I21, I23, L14 Keywords : Networks analysis, Network centrality, Peer−effect, Academic performance UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-034 by R. Narula - This paper asks: what can governments of new member states do to encourage MNEs to invest in R&D? There are two types of MNE R&D. Innovation can be undertaken in order to adapt its existing products and services to local stimuli. This is ‘demand−driven R&D’. Innovation can also be in stand−alone R&D facilities which are considerably more knowledgeintensive, and imply a considerably greater dependence on domestic knowledge sources and infrastructure. This is ‘supply−side R&D’. These two types of R&D require somewhat different approaches, and necessarily imply different policy options. In this paper, furthermore, we focus on the MNE and the potential for linkages, and do not limit ourselves to FDI and spillovers. MNEs engage in a variety of other informal and non−equity agreements to engage in knowledge exchange. We also deliberately consider the scope and competence at the MNE subsidiary level. These two novelties are useful in helping highlight the point that the tendency to focus on FDI flows is flawed, since knowledge exchanges and innovation are establishment level phenomena. An MNE policy is required which must link FDI policy and industrial policy in tandem. This paper argues that it is most practical to recommend that new member states focus on attracting and fostering demand−driven R&D activities by MNEs. Furthermore, we recommend that governments reduce the emphasis on costs while increasing the emphasis on specialised locationbound knowledge assets, and setting up programmes that foster demand−oriented upgrading of public R&D and human capital. keywords: R&D, MNEs, EU expansion, human capital, new member states, innovation policies JEL codes: O3, F2, P3 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-033 by J. Fagerberg, M. Srholec & B. Verspagen - Is innovation important for development? And if so, how? One popular perception of innovation, that one meets in media every day, is that has to do with developing brand new, advanced solutions for sophisticated, well−off customers, through exploitation of the most recent advances in knowledge. Such innovation is normally seen as carried out by highly educated labour in R&D intensive companies, being large or small, with strong ties to leading centers of excellence in the scientific world. Hence innovation in this sense is a typical “first world” activity. There is, however, another way to look at innovation that goes significantly beyond the high−tech picture just described. In this broader perspective, innovation – the attempt to try out new or improved products, processes or ways to do things – is an aspect of most if not all economic activities. It includes not only technologically new products and processes but also improvements in areas such as logistics, distribution and marketing. The term may also be used for changes that are new to the local context, even if the contribution to the global knowledge frontier is negligible. In this broader sense, it is argued, innovation may be as relevant in the developing part of the world as elsewhere. The paper surveys the existing literature on the subject with a strong emphasis on recent evidence on the macro and – in particular − micro level. Keywords: innovation and development, innovation capabilities, technology transfer JEL−codes: O14, O19, 031, 033, 040 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-032 by P. David - This short paper on a very big subject deals with a worry − a worry that the present economic crisis is likely to contribute to the already−existing temptations of governmental and private actors alike to behave in a time−inconsistent fashion when responding to the challenge of climate change. The specific concern here is that science and technology research commitments be launched soon enough on the scale that is likely to be needed, and that timely steps be taken toward the supportive adaptations in long−standing institutional and regulatory readjustments that can render those investments in knowledge more effective. Institutional changes, new incentive mechanisms and a rethinking of national policies with regard to exploitation of the international regime of intellectual property protections − are needed to successfully address the looming crisis of global climate change. Keywords: GHG emissions, CO2 pricing, Strategic Energy Technologies, EU SET Plan, green technologies, R&D, IRP, global technology transfers. JEL classification: O13, O31, O32, O33, Q54, Q55 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-031 by L. Soete - In this paper, we take inspiration from Thomas Malthus' hypothesis that food shortage and hunger would remain "nature's last most dreadful resource" and that "the power of population is so superior to the power of the earth to produce subsistence for man, that premature death must in some shape or other visit the human race". We revise and reinterprete it into a modern and thus global version and we elaborate on such a possible new interpretation and what its policy implications might be. In a first section, and somewhat as a parenthesis, we briefly comment on the financial crisis as it has unfolded over the last four months of 2008 and impacted gradually the real economy. In the second section of the paper we review the different policy responses to past Malthusian challenges: how food production succeeded particularly over the second half of the 20th Century to keep pace with rapid population growth. In a third section, we replace the word "population" in the above cited Malthus' quote with "consumption" and illustrate what this might imply for global world growth and Europe's place in the world in 2025. In a fourth and final section, we then draw some initial policy conclusions. The nature of the Malthusian challenges raised today appears both global and local in nature. On the one hand it raises questions with respect to the need for open, international research collaboration. Imposing national, or regional, boundaries with respect to research participation and funding, certainly appears (with respect to some of the most urgent Malthusian research problems) to be the expression of an outdated and wasteful research nationalism. On the other hand, the growing need for local knowledge re−use, adaptation and embedment in many emerging and developing countries involving efforts at local innovation, is in many ways similar to, and reminiscent of the development of the many innovation policy tools in European countries and regions. The first policy challenge, we refer to as "recherche sans frontières"; the second one as "innovation for local development". Keywords: Thomas Malthus, economic forecasting, population growth, economic growth, resource scarcity, innovation, globalisation, economic development, regional development. JEL classification: E17, O11, O13, O21, O33 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-030 by W. Raymond, P. Mohnen, F. Palm & S. Schim van der Loeff - This paper studies the dynamic relationship between input and output of innovation in Dutch manufacturing using an unbalanced panel of enterprise data from five waves of the Community Innovation Survey during 1994−2004. We estimate by maximum likelihood a dynamic panel data bivariate tobit with double−index sample selection accounting for individual effects. We find persistence of innovation input and innovation output, a lag effect of the former on the latter and a feedback effect of the latter on the former. The lag effect remains significant in the high−tech sector even after four years. Firm and industry effects are also important. JEL codes: C33, C34, O31 Keywords: innovation production function, panel data, CIS data, bivariate dynamic tobit, Netherlands UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-029 by T. Ziesemer - We provide a growth model with imported resources and foreign debt accumulation providing the basis for two questions and regression equations. 1) Under what conditions do growth rates of per capita income remain positive if imported inputs such as oil have increasing real prices? 2) Is accumulation of foreign debt driven by a current account deficit of which two percent of the GDP stem from oil imports, sustainable? For both questions we provide estimates for the USA with the following results. Oil price growth rates have only a marginal impact on those of GDP per capita as long as they exceed inflation rates by not much more than they did in the past. The US foreign debt/GDP ratio follows an unstable difference equation and therefore is not sustainable. We briefly discuss possible future stabilization through the market and through policies. JEL−code: F21, O41, Q01. Keywords: capital movements, growth, sustainability. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-028 by T. Lommelen, F. den Hertog, L. Beck & R. Sluismans - This paper reflects upon the way that we balanced design and development in three specific case projects in order to contribute to creating and accumulating knowledge that is both relevant to practitioners and academics. More specifically, it is shown how learning within one project was used to improve the design of the next project. The three projects were set up in the context of government−sponsored social science programs and aimed at improving innovation in SMEs. As the paper shows, looking at these three projects shows the contribution from seeing design and development as two sides of the same coin. Keywords design−oriented research, organizational development, large−scale projects (JEL M10) UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-027 by T. Ziesemer - The credit crisis of OECD countries has a negative impact on the growth of the world economy according to a simple error correction model. 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 fourteen equations for fourteen variables that allows for highly non−linear baseline simulations for these open economies. Then we analyze the effects of 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 very quickly, the GDP per capita returns to its baseline level in OECD countries and the world economy after some years but in poor developing countries it remains below the baseline scenario for more than 200 years. This long run blow to convergence leads to more remittances and emigration, a lower labour force growth, higher shares of GDP for saving, tax revenues, public expenditure on education and investment, and higher literacy. However, all these stabilizing forces through remittances and emigration cannot compensate the losses in levels of growth. Short and medium run effects are driven by a return to baseline for OECD and world GDP growth rates by the end of 2010, but for levels only 10 to 30 years later. Therefore we first get 15 to 20 years of fewer remittances, tax revenues, savings, public expenditure on education, literacy, and investment, more emigration and lower labour force growth. JEL class.: F22, 24; G01, O15, J61. Keywords: crisis, migration, remittances, accumulation, growth. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-026 by M. Iizuka & Y. Borbon−Galvez - There are two assumptions regarding regulatory instruments under the globalizing economy. These are: (1) increasing role of private standards in shaping the economic activities of developing countries; and (2) diminishing role of national institutions in “open” and “liberal” markets. In other words it was considered that global private standards would eventually replace already weak or absent national and local institutions in developing countries. The purpose of our paper is to suggest an alternative interpretation to this widely held view about national regulations and institutions in developing countries under the ‘new standard regime’ in the food and agricultural sector where the regulatory framework is traditionally stronger at national level. The role of national regulatory institutions is considered to diminish as the countries compete in the “open” and “liberal” global market since firms are obliged to comply with global private standards. Instead, we have observed cases in developing countries which demonstrate an opposite phenomenon. In these cases, the local and national institutional capacity had actually being enhanced through learning in the “open” and “liberal” market at global level. In other words, we discovered that while the global (private) standards intend to control and shape the economic activities in developing countries through value chains, the local institutions also were transformed in a co−evolutionary manner to sustain the viability of existing local economic activities. This paper hence tries to illustrate our argument with cases from developing countries to demonstrate how the process of adapting to survive in the ‘new regime’—compliance to global (private) standards—may have positive impacts on national and local institutions. Moreover, we intend to highlight some common features of transitions which are taking place in regulatory frameworks within the context of a global ‘new standards regime’ (public−private regulations). We will discuss the following cases of standards compliance and their impacts on enhancement of national and local capabilities: (1) the salmon farming industry in Chile, (2) and the fresh agricultural products in Mexico. These cases illustrate the complex interactions between global standards (both private and public−private) and national and local institutions. As the cases are slightly different, the comparison brings about interesting dimensions in illustrating institutional capacity building ‘trajectories’ from both private and non−private standards. Keywords: Standards, Role of National Institutions, Capacity Building, Latin America, Agri−food JEL code: L5, O25 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-025 by B. Mirza & R. Kemp - The paper tries to explore the rationale behind the complexities of energy poverty among different income groups in rural communities. We attempted to understand why rural rich, despite their relatively high purchasing power use energy sources which tend to categorize them as energy poor. Using Energy Poverty Survey (EPS) – a dataset of more than 600 rural households from 27 different rural communities of Punjab, Pakistan, we presented energy access situation in rural households among different income groups. Subsequently, we used logit to assess access factors which could impact the energy source choices among different income groups. The insignificance of household income for traditional biomass use and high significance of community remoteness indicators imply that households give high importance on the proximity of energy sources available to them and, in many cases, will prefer to be in the state of energy poor, than to use modern energy source like LPG. Keywords: energy poverty, rural rich and poor, rural communities, Punjab, Pakistan, fuelwood, animal waste, plant waste, kerosene, liquid petroleum gas JEL: Q01, Q42, I32 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-024 by R. Narula & J. Dunning - This paper revisits an earlier contribution (Narula and Dunning 2000) and considers how economic globalisation has changed the nature of the MNE, MNE motivations, the MNE subsidiary and the modalities by which they interact with domestic economic actors. Most developing countries, however, have responded reactively. We discuss how the opportunities and challenges for developing countries in following an MNE−assisted development strategy have changed over the last decade. The growing share of industrial activity owned and controlled by MNEs does not always result in a proportional increase in development effects, because individual MNE establishments have different potential for externalities. Concatenation is important: when stage−inappropriate MNE activities are established, crowding−out or regulatory capture is a likely outcome. We highlight the need for systematically linking MNE and industrial policies, but differently than in the import−substitution era. Attracting the ‘rights kind’ of MNE activity remains important, but the greater heterogeneity requires more customisation of policy tools. Lastly, we warn of the dangers of underestimating the social and political costs of structural adjustment and rapid institutional change associated with globalization. keywords: FDI, spillovers, industrial policy, governments, development, WTO, globalisation, developing countries, liberalisation. JEL: F23, O14, O19 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-023 by J. Baum, R. Cowan & N. Jonard - Empirical research on strategic alliances has focused on the idea that alliance partners are selected on the basis of social capital considerations. In this paper we emphasize instead the role of complementary knowledge stocks (broadly defined) in partner selection, arguing not only that knowledge complementarity should not be overlooked, but that is may be the true causal force behind alliance formation. To marshal evidence on this point, we design a simple model of partner selection in which firms ally for the purpose if learning and innovating, and in doing so create an industry network. We abstract completely from network−based structural and strategic motives for partner selection and focus instead on the idea that firms' knowledge bases must "fit" in order for joint learning and innovation to be possible, and thus for an alliance to be feasible. The striking result is what while containing no social capital considerations, the simple model replicates the firm conduct, network structure, and contingent effects of network position on performance observed and discussed in the empirical literature. Keywords: Network formation and dynamics; Innovation; Knowledge; Alliances JEL: D8, D2, L14, L2, O3 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-022 by S. Filippov & K. Kalotay - This paper examines the potential impact of the economic crisis – started in 2008 – on the dynamics global foreign direct investment, especially in the new member states of the European Union. The global economic crisis that hit the world in 2008 has forced scholars and policy makers alike to rethink their approaches to the global economy, in particular to financial markets (including stock exchanges and portfolio investment). It can be hypothesised that the crisis has been particularly devastating because it has resulted from the coincidence of three factors: a cyclical downturn in the world economy; a structural change that hit certain industries which used to be star performers in the global economy (especially the automotive industry); and the collapse of the previous model of the financial industry based on excesses. This paper asks how this crisis affects foreign direct investment flows, with special attention being paid to the question of which locations are set to lose the least and which ones are set to lose the most. In this respect, particular attention is paid to the activities of subsidiaries of multinational enterprises. These subsidiaries can follow different scenarios as a response to the global economic turmoil, including a reorganization of their production systems, and a reduction or closure of activities that are deemed to be less necessary for the continuation of activities. Finally, the paper examines the policy implications of the crisis. It challenges the view that rising economic nationalism (in the form of protecting one location against locations in other countries) would be the right answer to the problems created by corporate restructurings. Keywords: foreign direct investment, credit crunch, foreign subsidiaries, Europe JEL: F01, F23, O30 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-021 by T. Ziesemer - The sign of worker remittances in growth regressions is heavily disputed in the literature. Comparing two growth regressions with different signs for the remittance variable we show that collinearity with the lagged dependent variable might indicate that collinearity should be investigated comprehensively and might lead to a change in specifications which differ in the variance inflation factors (VIF). In our case the variance inflation factor for remittances depends on the use of a five or one−year lag of the lagged dependent. In the regression with a VIF below ten, the standard critical value, the sign of remittances is positive. Keywords: Growth, remittances. JEL−code: F24, O11,15,40. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-020 by L. Klerkx, A. Hall & C. Leeuwis - This paper examines the role of innovation brokers in stimulating innovation system interaction and innovation capacity building, and illustrates this by taking the case of Dutch agriculture as an example. Subsequently, it reflects upon the potential role of innovation brokers in developing countries’ agriculture. It concludes that innovation brokerage roles are likely to become relevant in emerging economies and that public or donor investment in innovation brokerage may be needed to overcome inherent tensions regarding the neutrality and funding of such players in the innovation system. The Dutch experience suggests that innovation brokers need to be contextually embedded, and are unlikely to become effective through a centrally−imposed design. Hence, we conclude that stimulating their emergence requires a policy that supports institutional learning and experimentation. In the evaluation of such experiments, it is important to note that innovation brokers tend to play intangible roles that are not easily captured through conventional indicators. Key Words: Agriculture, Developing Countries, the Netherlands, Innovation Broker, Neutrality, Institutional Learning, Context−Specific, Innovation Systems, Capacity Strengthening, Agricultural Extension Journal Codes: N54, 013, 031, Q13, Q16, Q18 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-019 by Z. Babutsidze - This paper presents the computational model of consumer behaviour. We consider two sources of product specic consumer skill acquisition, termed here as learning how to consume: learning by consuming and consumer socialization. Consumers utilize these two sources in order to derive higher valuations for products they are consuming. In this framework we discuss the behavior of returns to product promotion relative to the changes in product characteristics, such as quality and userfriendliness, as well as in case of varying intensity of consumer socialization. The main finding is that in case of duopoly the dependence of returns to advertising on product quality is not monotonic as it has been claimed by earlier studies. Additional important finding indicating the importance of the models with interacting agents is that returns to advertising exhibit qualitatively different behavior in case of zero intensity of consumer socialization. Key Words: Consumer skills, learning by consuming, consumer socialization, product promotion, returns to advertising. JEL codes: D11, M37, C63. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-018 by A. Arundel & R. Kemp - In this paper we offer a discussion of eco−innovation and methods for measuring it. Eco−innovation is a new concept of great importance to business and policy makers, covering many innovations of environmental benefit. Past research and measurement activity primarily focused on pollution control and abatement activities or on the environmental goods and services sector. We argue that eco−innovation research and data collection should not be limited to such environmentally motivated innovations, but should encompass all products, processes, or organizational innovations with environmental benefits. Attention should be broadened to include innovation in or oriented towards resource use, energy efficiency, greenhouse gas reduction, waste minimization, reuse and recycling, new materials (for example nanotechnology−based) and eco−design. Research should cover the drivers, patterns, and benefits of eco−innovation for each of these applications, since these factors are likely to differ. For measuring eco−innovation, no single method or indicator is likely to be sufficient. In general, one should therefore apply different methods for analyzing eco−innovation – to see the “whole elephant” instead of just a part. More effort should be devoted towards direct measurement of eco−innovation outputs using documentary and digital sources to complement the current emphasis on innovation inputs such as R&D or patents. Innovation can also be measured indirectly from changes in resource efficiency and productivity. These two avenues are underexplored and should be given more attention in order to augment our rather narrow knowledge basis. Keywords: eco−innovation, measurement, indicators, data needs. JEL codes O1 en O3 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-017 by T. Azomahou & T. Mishra - We consider a stochastic environment to study interactions among pollution growth, demographic changes, and economic growth. Drawing on the empirical findings of slow convergence patterns of pollution shocks (viz., with a long−memory), we build an analytical framework where stochastic environmental feedback effects on population changes are reflected upon aggregate economic growth. Long−memory in economic growth, in our model, is shown to arise due to the inherent stochasticity in environmental and demographic system. Empirical results for a set of developed and developing countries generally support our conjecture. Simulation experiment is carried out to lend additional support to this claim. JEL Classification codes: C13, J11, O47 Key words: Environmental quality, long−memory, demographic dynamics, economic growth UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-016 by A. Doranova, I. Costa & G. Duysters - The Clean Development Mechanism (CDM) is one of the three greenhouse gas emission reduction and trading instruments of the Kyoto Protocol (KP). The CDM allows governments and business entities from developed countries to offset their emissions liabilities by reducing or avoiding emissions in developing countries, where it is often cheaper to do so. Examples of CDM projects include the installation of various renewable energy producing facilities, cutting the GHG emissions in industry and waste management, or projects focused on improving energy efficiency. From the sustainable development perspectives CDM has been alleged as a new channel of transfer and diffusion of climate friendly technologies (CFT) in developing countries. However we are evidencing that the majority of the CDM projects deploy local sources of technology, which challenges the North− South technology transfer paradigm established under the sustainable development agenda of the KP. This paper is an attempt to explain technology sourcing patterns in CDM projects through employment of knowledge base determinants. On the basis of an empirical analysis we conclude that in countries with a stronger knowledge base in CFT, CDM project implementers tend to go for local and combined technologies and less for foreign technologies. Key words: Clean Development Mechanism, Kyoto Protocol, Technology JEL Classification: Q0, Q2, Q4, O3, O33, O38 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-015 by P. Mohnen & B. Lokshin - While in 1996, 12 OECD countries offered R&D tax incentives, in 2008 this number increased to 21. Most countries have opted for level−based instead of incremental R&D tax incentives. This paper takes a critical look at how the effectiveness of R&D tax incentives has been assessed in recent evaluations. Whether based on structural models estimating a price elasticity of R&D or on treatment evaluation methods, most studies estimate the cost effectiveness ratio or additionality. If the cost effectiveness ratio is greater than 1, or firms to more R&D than before, the policy is considered to be effective. A more proper net welfare evaluation of this policy should also include administration, compliance and transfer costs, the marginal burden of taxation, as well R&D externalities and the indirect effects on innovation and productivity. The net welfare gain is shown to be sensitive to a certain number of parameters that are not always estimated with great precision. In particular, the transfer cost or deadweight loss associated with level−based tax incentives is shown to depend on the size of the firm, or more precisely its ex−ante R&D level. We report on the success of a past policy changes in the Netherlands and simulate the effect of various parameter changes in the existing Dutch R&D tax incentive scheme. We show that introducing marginal changes in the schemes’s parameters has little impact of increased R&D spending. The policy is more effective for small firms than for large firms. We end with a discussion of the pros and cons of level−based versus incremental R&D tax incentives. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-014 by A. Garcia & H. Hollanders - This paper tries to quantify the effect of diffusion of informal knowledge on the innovative performance of European firms using data derived from the 3rd Community Innovation Survey. When firms are asked whether or not they have introduced new products or processes, they were also asked to which degree such innovations were developed in−house. These degrees were captured by the CIS variables InPdtW and InPcsW. These variables ranged from 1 (Mainly done by the firm) to 3 (Mainly done by other enterprises). The focus of this paper is to investigate the impact of diffusion of informal knowledge. We combine the previous variables with another variable which reflects firms that were not doing any formal collaboration with other institutions. If an innovative firm has no formal collaboration arrangements and the innovation has not been done mainly by the firm, then diffusion of informal knowledge is considered to be the main driver of the innovation. The idea is that informal channels are accessible to all firms. This paper tries to quantify the impact of such flows of knowledge on firms’ innovation performance. To do this, a two step procedure is followed: −In a first step, a latent variable for diffusion of informal knowledge is defined and estimated based on firms’ characteristics. −In a second step, the latent diffusion variable is introduced as a regressor in a probit/tobit model. Keywords: Knowledge flows, innovation, dynamic equations, sectoral innovation, CIS. JEL: C34, O32, O31 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-013 by A. Garcia - Growth theory has mainly focused on process innovation, either through an increase in quality of the product or a reduction on the cost. The main contributions in growth theory that includes product innovation has been done in the Dixit and Stiglitz framework. This framework works with oversimplifying restrictions on the demand side: Preferences of consumers are assumed to be constant and equal for all goods. This paper introduces vertical and horizontal differentiation in final goods. Goods are different in their habit formation parameters. Innovation is not the normal reduction in costs but an increase in the capacity to satisfy consumers’ needs. Growth in this model is defined as the growth of the final value added. JEL: O4, E21, D11, O31, M37. Keywords: growth, product innovation, technical change, consumption. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-012 by I. Bodas Freitas & B. Verspagen - This paper aims at analysing the impact of institutional and organizational factors on bridging industrial and university motivations for collaboration, as well as on the content, management and outcome of this relationship, in the Netherlands. In particular, we explore which type of projects, set up under specific industrial and university motivations, are more likely to face institutional barriers related to technology, market and organisational incentives frameworks. Moreover, we analyse the impact of technology transfer offices, research sponsoring, part−time professorships, and patenting on aligning university and industry motivations towards collaboration. To proceed empirically, thirty in−depth cases of successful university−industry knowledge transfer are analysed. Keywords: university−industry interaction, innovation cooperation. JEL codes: O31, O32. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-011 by A. Szirmai - This paper examines the emergence of manufacturing in developing countries in the period 1950−2005. It presents new data on structural change in a sample of 63 developing countries and 16 advanced economies. Industrialisation is seen as a single global process of structural change, in which separate countries follow different paths depending on their initial conditions and moment of their entry into the industrial race. With a few important exceptions such as Mexico, Brazil, India and China, developing countries embarked on industrialisation after 1945. The paper argues that successful catch up in developing countries is associated with industrialisation. It examines the theoretical and empirical for the thesis that industrialisation acts as an engine of growth and attempts to quantify different aspects of this debate. The statistical evidence is not straightforward. Manufacturing has been important for growth in developing countries, but not all expectations of the engine of growth hypothesis are borne out by the data. The more general historical evidence provides more support for the industrialisation thesis. Keywords: Structural Change, Manufacturing, Engine of Growth, Catch Up JEL CODES: O14, Industrialisation, Manufacturing and Service Industries; N6, Manufacturing and Construction UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-010 by M. Steglich, E. Keskin, A. Hall & J. Dijkman - Agrifood stakeholders across the world are under ever−increasing pressure with globalization and new market demands — together with changing quality and safety requirements. The ability to respond to new challenges and opportunities is important not just for producers but also for industries in developing countries. This paper explores the horticulture sector of Kenya in order to gain a better understanding of what has most significantly contributed to its success in terms of innovation response capacity. This paper aims to present what “innovation response capacity” entails, especially for natural resource−based industries in a developing country context. It will also provide an analytical framework that draws elements from agricultural innovation capacity and the innovation systems framework. This is provided through case study research conducted in Kenya by exploring a prominent horticultural enterprise, Homegrown Ltd. The paper concludes that an important element of success in this case was the formation of a range of linkages that enabled a systemic sector response to challenges rather than isolated action of individual players. Key Words: Innovation Response Capacity, Kenya, Horticulture, Globalization, Smallholder Production, Policy Journal Codes: N57, 013, 031, Q13 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-009 by I. Costa & A. Marin - This paper investigates FDI−related spillovers in Brazil for the period 1996−2005. In contrast to most previous recent studies, which have failed to identify any significant effects in emerging economies, we found that horizontal spillovers did arise in Brazil. However, they did not arise simply as a consequence of general FDI−mediated technology transfer from MNC headquarters, as the standard approach presumes. Nor were they associated with expected inter−industry differences in technological intensity, or with differences in domestic firms’ absorptive capability. Instead, spillovers were associated with the existence of particular kinds of localized knowledge−creation activities undertaken by subsidiaries. We discuss the theory and policy implications that emerge from these results. Keywords: FDI spillovers; subsidiaries; heterogeneity; localized innovation; Brazil; productivity. JEL codes: O3, O4, O1 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-008 by T. Ziesemer - In regressions for net immigration flows of developing countries we show that (i) savings finance emigration and worker remittances serve to make staying rather than migrating possible until a certain value, beyond which the opposite holds; (ii) lagged dependent migration flows have a negative sign even in the presence of migration stock variables; (iii) migration stocks have S−shaped effects: at sufficiently low values higher migration stocks support emigration; beyond a threshold value they support net immigration before they possibly support emigration again after a second threshold value. JEL−code: F22, O15. Keywords: migration, remittances. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-007 by T. Azomahou, B. Diene & L. Soete - We study the behavior of consumption and health investment resulting from shocks undermining health capital accumulation. We examine the effects on subsequent life cycle of long−lived shocks undermining health with either an acceleration of health capital deterioration, or a decrease in health investment efficiency. We also address the issue of the financing of health investment. We provide new evidence based on nonparametric estimations which show complex non−linear interplay between life expectancy and health expenditure. We then develop a benchmark model where consumption and health capital enter additively in the utility function, featuring independence between the returns from ordinary consumption and health. Then, we depart from this setup by assuming non−additive preferences meaning that ordinary consumption also is crucial for health. We show that a shock undermining health which increases health expenditures and weakens the income base, not only affects savings but also compromises the consumption capacity, the human and physical capital of the economy, and undercuts the process of economic development. We also show that the magnitude of the effects strongly depends on the assumed preferences. JEL classiffcation: E21; I12; O10 Keywords: Ordinary consumption; health investment; saving; non−parametric estimation UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-006 by A. Garcia - Evolution of consumers' preferences has been recognized by many scholars as being key to understanding technological change. However, mainstream economics cannot account for the seemingly irrational behavior of consumers based on changes in taste – consumer theory lacks exibility and accuracy to explain changes in consumer behavior. Adopting a behavioral psychology perspective, this paper argues that there is a rational pattern in the change of consumers' tastes. I argue that behavioral psychology offers us a unique perspective to solve some of the paradoxes of consumer behavior. This paper incorporates exibility into CES utility function to more adequately account for, and differentiate between, habit formation routines. A model is developed in which habit formation and consumption of new goods are interrelated. UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-005 by M. Iizuka - Conventionally, standards are considered as a governance tool in the production system in a one−directional and hierarchical relationship between foreign trans−national corporations (TNCs) or global buyers on one hand and subsidiaries and producers on the other. They were considered as transmitting necessary specifications of goods – codified knowledge – to the producers. Despite the fact that this process begins with a one−way power relationship and associated flow of knowledge and standards, such one−way flows may become consolidated into two−way interlinkages when power balances themselves reverse with the development of collective capability in catching−up countries. In such a context, standards increasingly act as a catalyst for creating collective interfaces where diverse knowledge from horizontal and vertical relationships – local and global, tacit and codified, and buyer and producer – intercept and converge to promote interactions and learning for those involved. The Chilean salmon farming industry is examined to understand how standards compliance enhanced collective capability. Key words: Standards, Capability, Governance, Catching up JEL code: L15, L 66 O 13 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-004 by R. Perrot - This paper looks at the role of firms in the transformation of fossil fuel based energy systems towards cleaner and greener energy systems. Firms are playing an important role in determining the speed and direction of technical change towards such energy systems. But systemic constraints and negative externalities tend to make such transformations constraint and difficult. To be able to understand how firms overcome these systemic constraints and bring about positive externalities it would be important to observe the strategic role played by firms. Firms are removing technological and economic constraints by engaging in strategic alliances with other firms and research organizations. Both small and large firms have positioned themselves strategically in the green energy market either through basic innovations or through innovations brought about by joint technological partnerships. JEL: A10, M21, 039 Keywords: Firm Strategy, Sustainable Energy, Renewable Energy, System Transition UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-003 by S. Akçomak - There has been a recent surge of interest in social economics and social capital. Articles on social capital that are published in the last five years constitute more than 60 percent of all articles on social capital. Research on social capital is now massive and spans sociology, economics, management, political science and health sciences. Despite this interest there is still not a consensus on the definition and the measurement of social capital. This paper argues that this is due to lack of interaction between disciplines. The social capital of social capital researchers is low between disciplines. Different from other theories of capital, social capital theory has concurrently been developed by various disciplines and as such, advancements in social capital research could only be achieved by conducting crossdisciplinary research. Key words: Capital, social capital, co−authorship network JEL codes: A13, Z1 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-002 by R. Baghana & P. Mohnen - In this paper we evaluate the effectiveness of R&D tax incentives in Quebec, using manufacturing firm data from 1997 to 2003 originating from R&D surveys, annual surveys of manufactures and administrative data. The estimated price elasticity of R&D is −0.10 in the short run and −0.14 in the long run, with a slightly higher elasticities for small firms than for large firms. We show that there is a deadweight loss associated with level−based R&D tax incentives that is particularly acute for large firms. For small firms it is not sizeable enough to suppress the R&D additionality, at least not during quite a number of years after the initial tax change. Incremental R&D tax credits do not suffer from this deadweight loss and are from that perspective preferable to level−based tax incentives. Keywords: R&D tax credits, Quebec, price elasticity of R&D JEL codes: O32, O38, H25, H50, C23 UNU−MERIT Working Papers ISSN 1871−9872 http://www.merit.unu.edu/publications/wp.php?year_id=2009#wp2009-001