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The latest version had published in TF&SC. Please cite this article as: H.-C. Huang, et al.

, Contagion effects of national innovative capacity:

Comparing structural equivalence and cohesion models, Technol. Forecast. Soc. Change (2010), doi:10.1016/j.techfore.2010.07.017
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National Innovative Capacity in the International Technology Diffusion:

The Perspective of Network Contagion Effects
Hung-Chun Huang, Hsin-Yu Shih
National Chi Nan University, International Business Studies Dept., Taiwan

Abstract--Effective promoting national innovative capacity states trade and investment policies are influenced by trading
performance tends to be a critical policy for a country. This partners and competitors. A focal country will be subject to
study examines network contagion effects on international policy influences from its cohesive partners and structurally
diffusion of embodied and disembodied technology by two equivalent competitors. Based on the previous literature on
different social network models: cohesion models, which are
based on diffusion by direct communication, and structural
the influence of national innovative capacity, simply focusing
equivalence models, which are based on diffusion by network on the internal environment in a nation cannot entirely affect
position similarity. This study then utilizes the data of 42 the performance of national innovative capacity.
countries from 1997 to 2002 to empirically examine their This study examines social contagion effects, using
relational influences. The analytical results show international cohesion and structural equivalence models to explore the
technology diffusion influences the performance of national critical influence mechanisms of a national innovative
innovative capacity through contagion effects; however, the capacity. Amplifying the influence of national innovative
mimetic behavior is predicted better by network position than capacity requires not solely reinforcing the internal elements
by interactions with others. This result provides a broader of NIC but concentrating on the interaction with cohesive
consideration for science and technology policy.
countries or the imitation of structurally equivalent
competitors. Hence, the research objectives in this study are
the following: Firstly, to evaluate the contagion effects on the
performance of national innovative capacity through
Due to fierce global competition, developing or developed
international diffusion of embodied technology and
countries have experienced the pressure of competition;
disembodied technology. Secondly, provide authority
especially for developing countries, they must meet the
utilizing extensive consideration on the influence upon
intractable challenges of technological advancement and
national innovative capacity to make a more perfectible
innovation from advanced countries. Technological
policy toward magnifying national competitiveness.
innovation is an indispensable means for promoting national
The rest of this study is organized as follows. Section II
competitiveness, no matter what level the country in question
examines literature focusing on the concept of national
currently occupies. Freeman et al.[1] theorize that national
innovative capacity, international technology diffusion
innovative capacity reflects more fundamental determinants
containing embodied and disembodied form and social
of the innovation process, proposing the influence of national
contagion effects, the cohesion model and structural
innovative capacity, offering countries recipes to affect
equivalence model. Section III then proposes the research
national innovative capacity. Technology is highly related to
hypotheses in relation to the testing and comparison of the
cultural and social settings of organizations [2]. However,
different contagion effects. Next, Section IV introduces the
Furman & Hayes [3] suggest that a well-functioning
measurement and models of social network analysis used to
innovation infrastructure is essential but not sufficient to
investigate the mechanisms of international technology
support the environment required to achieve everlasting
diffusion. Section V empirically tests the research hypotheses
innovation at the world’s technological frontier. In addition,
applying the sample of international technology diffusion on
related R&D management literatures stress the necessity for
global structure, and discusses the theoretical and managerial
interaction between developers and users of new technology
implications. Finally, conclusion and remarks are shown in
to enhance the development and execution processes [4-7].
section VI.
Therefore, the interaction among organizations brings forth
the progress of technological innovation. So does the
communication among countries.
Countries make these interactions affect each other in the
This section introduces national innovative capacity and
performance of economics, politics and culture, due to the
defines the international diffusion of technology involving
development of information technology. So, while a country
two types of diffusion, embodied and disembodied. The final
makes a decision or a direction of its policy on national
sub-section focuses on social contagion effects, exploring
technology development, it not only depends on its own
previous works discussing social network analysis.
situation, but may seek other countries’ advice or experience.
Theories of interdependence support mutual interdependence
A. National innovative capacity
between nations from close interactions, resulting in
National innovative capacity has been defined as the
reciprocity and complicity in policies [8]. Koka et al. [9]
institutional potential of a country to sustain innovation.

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Numerous scholars (e.g. [10, 11] ) have clearly defined this by other countries; that is, the purchasing country employs
concept and a suitable measure based on patenting rates. passive technology spillover or embodied technology
Therefore, patents are acknowledged to provide a reliable and diffusion [19] to supply their innovation capacity. The
unbiased indication of national innovation effort [12, 13]. activities of the international diffusion of embodied
One of the clearest indicators of innovation performance is technology are observable based on trade flows and foreign
the rate of take-up of patents issued by the US Patent and direct investment [17, 20]. Moreover, most related studies
Trademarks Office (USPTO). Innovative capacity primarily (for example [21-25]) demonstrate a significant positive
depends upon the technological level and sophistication of an relationship between total factor productivity and
economy and the investments and policy choices of both international trade for a given nation as evidence of
institutions and the private sector [11]. Consequently, international research spillover.
measuring national innovation output includes patents, New growth theory argues that the marginal profit from
publications in scientific journals, copyrights, trademarks, etc. capital investment is not certain to decrease over time, and
All of these are products of innovation efforts, and copyrights accumulated capital can sustain long-term GDP per capita;
and trademarks even represent direct indicators of innovative this theory also deems knowledge to be the public goods in
output[11]. However, this work, based on previous studies the capital accumulation and the creation of an increasing rate
(e.g.[10, 11]) chooses patent output as innovative output. of return via the spread of information. A nation benefits
Additionally, Furman & Hayes [3] note that PATENTS from spillover through trade partner investment knowledge.
correlated positively with the true level of new-to-the-world Consequently, knowledge capital and R&D activities benefit
innovative output in their model, and that it appears to be the national economic growth. Smith & White [26] demonstrate a
best available indicator for comparing national innovation positive relationship between trade and national
output across countries over time. Trajtenberg [13] even competitiveness using exploring the dynamic configuration of
considers international patents “the only observable global economics through trade flows. Coe et al. [27] find it
manifestation of inventive activity with a well-grounded better to measure trade-related spillover using trade in capital
claim for universality.” Therefore, international patents is the goods rather than total trade. Hence, this work adopts imports
most useful available measure for comparing innovation of machinery and equipment for diffusing information on
output across countries and over time [3]. Consequently, this embodied technology to investigation. Countries exchanging
study adopts USPTO patenting activities by sample countries goods through international trade generate rent spillover.
to measure national innovative capacity.
2. Disembodied Technology Diffusion
B. International Technology Diffusion The type of pure knowledge spillover, as well as the
Diffusion is a process that involves spreading certain inherent knowledge simulated and adopted by others, emerge
innovation information by participants in a social system primarily by externalities in the form of flows of research and
through particular channels [14]. Diffusion is an exceptional development (R&D) personnel, mobility of knowledge,
form of communication, and involves participants providing dissemination via cooperation, international technology
and sharing information. Diffusion thus can refer to the learning or the direct purchase of foreign technology
dissemination of knowledge, technology transfer or knowledge. Such knowledge spillover makes leaders of
deployment [2]. Technology diffusion was influenced by enterprises or nations reluctant to accept unavoidable spread
innovations and technical updates over time. Based on and diffusion via numerous noncommercial channels. Thus
technology diffusion, Vernon[15] argues international product this kind of diffusion can be called active technology
life cycle theory; however, this theory focus upon production spillover or the disembodied form of international technology
sites shifting process and trade flow rather than the influence diffusion, measured in the form of formulas, blueprints,
of technology diffusion on innovation capacity. Countries drawings, patent citations, and so on [28]. The advantages of
acquire innovation technology in two main ways, enforcing innovation activities are reflected in the process of
domestic technology development and innovation capacity, commercialization[19]; restated, an effective method of
and obtaining foreign advanced technologies via international measuring national competitiveness in disembodied form is
technology diffusion. Griliches [16-18] divides international through patent citation frequency.
technology diffusion into rent spillover and pure knowledge Pure knowledge spillover results from disembodied
spillover. knowledge flows, including licensing, patent citations, or
outsourcing agreements. Griliches [17] suggests that patent
1. Embodied Technology Diffusion citations can be measured as a disembodied form of diffusion.
The type of rent spillover, referring to the price of new Moreover, Helleiner [29] indicates that based on the
products for which innovation technology knowledge exists, definition of a patent, technology includes not only legally
cannot fully reflect the high quality of knowledge innovation guaranteed patents and trademarks but also the sophistication
in the process of commercialization. A country purchasing technique for tangible merchandise.
intermediate products at certain price that does not mirror According to Jaffe et al.[30], Eaton & Kortum[31], and
their actual value can enjoy the benefits of R&D conducted Hu & Jaffe[32] international patenting is a proxy of the

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channel for the international diffusion of disembodied 2. Structural Equivalence Mechanism

technology. Patents can indicate intellectual property and The other process of contagion is social comparison. In
measure technology innovation performance [33, 34]. searching for a social identity, before the ego acts, it observes
Numerous researchers have taken frequency of patent alters’ acts, and then corrects its actions. Ego compares
citations as an indicator of national innovation himself with those alters who he sees as similar in network
competitiveness (e.g.[16, 35]) , with the importance of a aspects [39]. The comparison is actuated if actors are
patient increasing with frequency of citations. Patient competing [40]. Therefore, the comparison is most frequently
citations thus are measurable innovation indicators of operated using the concept of equivalence. Equivalent actors
national competitiveness. Hence, this study adopts patent are similarly embedded in the network. The most
citations as a means of disembodied technology diffusion to comprehensive conception of equivalence is structural
investigation. Countries citing their patents to others generate equivalence [43]. The concept of social equivalence exhibits
pure knowledge spillover. another socialization process. The actors in the structural
equivalence mode exhibit a similar pattern of relations to
C. Contagion Effects other actors in the social configuration [41], despite not
Lundvall [36] argues that the production and diffusion of necessarily having direct ties with one another. The similarity
new knowledge occurs in the mutual learning of members, of patterns arising from social context creates powerful
and that is conducive to the development and diffusion of internalized pressures with which actors must comply [9].
new technology. This if this study observes the influence of Therefore individuals encountering uncertainty may refer to
social proximity on national innovation performance, it can structurally equivalent actors to simulate appropriate
identify a similar mode of international interaction. Social responses. Burt [40] proposes that decision-makers are
influence occurs when actor behavior, attitudes, or beliefs socialized via the symbolic role-playing of placing
involuntarily follow those of others in the same social system. themselves in the position of others. This study thus applies
Contagion is often used to describe the processes involved in the structural equivalence model to examine the influence
social influence [37, 38]. Social influence theory involves national innovative capacity on performance.
two processes: communication and comparison [39].
1. Cohesion Mechanism
Communication based on social influence involves direct This work examines the performance of national
contact between ego and alter [40]. Cohesion is the most innovative capacity using social contagion effects, via the
common approach to operating a communication process in cohesion and structural equivalence models, and through
social network analysis. While the ego hesitates to make a international diffusion of embodied and disembodied
decision, he will seek alters who he trusts for consultation, technology. Regarding the cohesion model, primarily the
mostly owing to the relationship of cohesion between them. significant alter within a cohesive group influence actors who
The more intimate and frequent interactions between ego and directly contact one another. In the structural equivalence
alter, the greater the influence of alter on the opinion and model, the alter in the similarity of network position
behavior of the ego [39]. The frequency, intensity, and influence actors and they may not have direct interactions
closeness of interaction among cohesive actors leads to with. Hence, the hypotheses in this study employed the
increased recurrence of action than it does among contagion model to examine embodied and disembodied
non-cohesive actors, not only increasing the opportunity to technology diffusion.
transmit social clues [41], but also resulting in network
constraints among them. Some social network researchers A. Cohesion Model
interpret cohesion from a group perspective. Festinger [42] The cohesion model centers on the interaction between
defines cohesion as “the result of all the forces acting on all ego and alter. When actors encounter tough questions or deal
members to remain in a group.” Actors in cohesive groups with something, their attitude and conduct will lean towards
exhibit greater behavioral conformity and accordant alters within the same group. This is the social influence
relationship than those in less cohesive groups. Social process. The cohesion model incorporates the opinion,
structure is a configuration of social relations among actors behaviors, attitudes, and policies connecting actors. Therefore,
where the relations involve exchange of cherished items that the policy making of a given country promptly follows the
can be tangible (substance) or intangible (knowledge, one of an alter country, since both share the common
information). Because of exchange, international trade yields evaluation of the costs and benefits from interaction [40].
increased opportunities for information sharing and thus Hence, this study can assume that the countries within the
government policies similarity between partner countries [9]. same group through cohesion mechanisms can influence the
This study thus examine the influence of cohesion innovative capacity performance of a certain country. Thus
mechanism on national innovative capacity performance. the hypotheses are:
Hypothesis 1: The performance of national innovative
capacity of a focal country is influenced positively and

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significantly by those of other countries within a disembodied technology, the performance of national
cohesive group formed through international diffusion innovative capacity between countries with social
of embodied technology. proximity structural equivalence is more similar than
Hypothesis 2: The performance of national innovative those countries with social proximity of cohesion.
capacity of focal country is influenced positively and
significantly by those of other countries within a IV. METHODOLOGY
cohesive group formed through international diffusion
of disembodied technology. A. Data
This investigation employs a sample of 46 countries over
B. Structural Equivalence Model the period from 1997 to 2002, ranked according to the Global
Burt [44] argues that ego’s behavior is predicted more Competitiveness Index of the World Competitiveness
precisely by structural network position than interactions with Databank. The social contagion effects dataset contains four
others. Because of competition, ego’s making changes will be categories: bilateral trade in exports and imports, frequency
readily followed by competitors [39]. An actor will accept an of patent citations, aggregate R&D Expenditure and
innovation while perceiving others structurally equivalent to international patents granted in year t+3. Trade flow data are
him applying it. Owing to similarity, actors would experience mainly obtained from Global Trade Information Services,
the awareness of competition, and then take others as the Inc.. However, data on imports are more accurate than those
paradigm. Therefore, the more similar ego's structural on exports [26, 47, 48], and this study adopts an importing
position with others, the more possible that others would dataset. Furthermore, Coe et al. [27] found that it is better to
substitute for ego's positions [40]. According to the Burt's measure trade-related spillover using trade in capital goods
study, this study can figure out that actors in the structural than total trade.
equivalence model mean that they are competitive with each For frequencies of patent citations, the dataset of patents
other. Burt applied the concept of structural equivalence to granted by the United States Patent and Trademark office,
the study of industrial structures, and he also concluded that and frequencies of patent citations are obtained from the
an actor's adopting behavior is triggered by others who are NBER Patent Citations Database [49]. Owing to technical
structurally equivalent in the network. Therefore, this study difficulties in analyzing raw data, this investigation gathers
has the following hypotheses: data for the periods from 1997~2002 1 and contains
Hypothesis 3: The performance of national innovative frequencies of inter-country patent citing and cited. As for the
capacity of a focal country is influenced positively and total R&D expenditure of each country, this investigation
significantly by those other countries at structurally refers to World Competitiveness databank, IMD.
equivalent levels defined through international diffusion PATENTS represents the number of patents granted in
of embodied technology. year t+3 by USPTO due to the average lag between the
Hypothesis 4: The performance of national innovative application and approval accounted by USPTO and between
capacity of a focal country is influenced positively and the measures of innovative capacity and the observed
significantly by those of other countries structurally realization of innovative output [11]. Considering the
equivalent, defined through international diffusion of completeness of data collection, this investigation selects 42
disembodied technology. countries as the sample owing to materials for some countries
being absent.
C. Comparison Appendix 1 lists the countries studied in this work. The
Social contagion effects of the cohesion and structural initial levels of innovative productivity and the legacy of
equivalence models show theoretically fundamental historical situations of each country represent different
difference of mechanisms. Although there may be two influences on the performance of national innovativeness [3],
different contagion mechanisms in social proximity, many and thus Appendix 1 shows both embodied and disembodied
scholars all argue that ego’s behavior is more inclined to be diffusion countries. Appendix 2 lists variable sources and
affected by alter having the same network position than by definitions.
alter interacting with each other [9, 40, 45, 46]. Hence, the
contagion effect of structural equivalence model should be B. The International Technology Diffusion
stronger than the cohesion model. The hypotheses of This work employs social contagion effects to examine
comparison on the performance of national innovative spillovers in international technology diffusion. Since total
capacity are examined as the following: national R&D expenditure is positively and significantly
Hypothesis 5: In terms of international diffusion of related to international technology diffusion, [18, 50], Xu &
embodied technology, the performance of national Wang[51] and Shih & Chang[48] propose that international
innovative capacity between countries with social technology diffusion is measured based on national R&D
proximity structural equivalence is more similar than
those countries with social proximity of cohesion. 1
The original data in NBER was collected until 1999, and Hall, Jaffe and
Hypothesis 6: In terms of international diffusion of Trajtenberg continue updating the project and collected data until 2002.

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expenditure, which must be multiplied by a weighted affected by the opinions and behaviors of significant others
coefficient, this study considers total national R&D belonging to the cohesive group or occupying a position of
expenditure when measuring the degree of international structural equivalence. This influence process is the
technology diffusion. Equation (1) shows the formula used to contagion effect.
calculate international technology diffusion. Burt [40] designed a theoretical framework for the
ITDij = rij × RDi (1) contagion effects of cohesion and structural equivalence in
the social network by observing the diffusion of medical
Here, ITDij represents the degree of technological innovation proposed by [52]. Thus, this study adopts the
social contagion model devised by Burt [40] to forecast
knowledge diffusion from country i to country j, RDi is the
international technology diffusion among countries. yi is
R&D expenditure of country i; and rij represents the defined as the patent output in country i, and represents the
realization of national innovative activities in country i. y*i
fraction of knowledge spillover from country i to country j.
denotes the expected patent output in country i based on the
Distinguishing embodied and disembodied forms of
response to other countries and ε represents the residual term.
technology diffusion requires establishing two weighting
Weight wij is the crucial term in this study, which can
formulas, rE ,ij ,t and rD ,ij ,t . This study defines the embodied recognize the contagion effects of cohesion and the structural
form of diffusion as rE ,ij ,t [48]. equivalence model by operating wij, and it measures the
social proximity of country i to country j relative to its social
M ij ,t proximity to other countries, except that country i reveals the
rE ,ij ,t = l l i ≠ j, i, j, l = 1,2 … ,42 (2) degree of closeness between countries i and j compared to
∑∑ Mi =1 j =1
ij ,t
other countries within the network. The contagion effects
equation is as follows:
Mij,t represents country j importing capital goods from ⎛ ⎞
yi = ρ ⎜⎜ ∑ wij y j ⎟⎟ + ε j≠i ( )
or yi = ρ yi* + ε , j ≠ i (4)
country i during year t; l stands for numbers of countries, ⎝ j ⎠
from 1 to 42. Regarding trade flows in this study, the quantity Here, yi* = ∑ wij y j , j ≠ i
of machinery and equipment imports in one country is j
multiplied by total R&D expenditure in another country, and ( proximity i to j ) v , k ≠ i (5)
it imports from 42 countries while they export to this country wij =
∑ ( proximity i to j)v
so it forms 42 by 42 matrix. Hence, this study assumes that if k

a certain country imports more capital goods from other The magnitude of exponent v can be measured as the
country, the net importer nation will benefit through degree to which country i is reactionary in relying on other
embodied technology diffusion. countries [40, 46]. This work operates the contagion effects
Regarding the disembodied technology diffusion, patent of the cohesion and structural equivalence models via wij., and
citations represent the linkage to prior knowledge; restated, thus the two models can measure the social proximity of
the frequencies with which a certain country cites patents contagion effects by equation Eqs. (4) and (5). If social
from another country represent the density of pure knowledge proximity is measured by trade flows or frequency of patent
spillovers between the two countries. Thus, the weight of citations between countries i and j, then wij represents the
disembodied technology diffusion is rD,ij,t, defined as: cohesion model. On the other hand, if social proximity is
Cij ,t measured via the similarity of relation between country i and
rD ,ij ,t = l l
i ≠ j, i, j, l = 1,2 … ,42 (3) country j, then wij represents the structural equivalence model.
∑∑ C
i =1 j =1
ij ,t ∑ ij j
Since y * = w y , the meaning of
yi* is different from the

Cij,t denotes the frequencies of country j citing patents from relationship between actors. Consequently, if wij is measured
country i during year t; l represents individual countries by using the cohesion model, then yi* represents the degree to
number, from 1 to 42. Patent citations are measured by the
citation frequencies and owing to the reference, a given which country i responds to the performance behavior of
country cites patents from 42 countries while they are cited trading or citation partners. Conversely, if wij is measured
by this country, it also constitutes 42 by 42 matrix. This study using the structural equivalence model, then yi* denotes the
thus assumes that when a given country cites more patents response of country i to the performance of competitors. The
from other countries, the patent citing nation will benefit
from disembodied technology diffusion. relationship between yi and yi* represents the degree to
which social contagion process influences international
C. Contagion Effects technology diffusion.
Numerous researchers are interested in the contagion
process of the innovations diffusion[45, 46]. Actors tend to be

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1. Cohesion Model ⎡ ⎛ ITD 2 2

⎤ 2 , i ≠ k ≠ j (7)
ITD jk ⎞ ⎛ ITDkj ⎞
This study employs the two types of diffusion mechanism, d ij = ⎢∑ ⎜ ik
− ⎟ + ∑ ⎜ ITDki − ⎟ ⎥

⎢ k ⎝ Ri Rj ⎟ ⎜
k ⎝ Ci Cj ⎟ ⎥
cohesion and structural equivalence models. As for the ⎣ ⎠ ⎠ ⎦
cohesion model, the weight matrix W is measured using the After identifying the structural equivalence between
row data, representing the effects of social contagion on countries i and j, this study applies the value of Euclidean
national innovative capacity of importing or patent citing
distance d ij to the weight wij. The weight wij of the
countries. In this study ITDij denotes the degree of
technological knowledge diffusion via export value or structural equivalence defined by Burt [40]. d max i
frequency of patent citations from countries i to j; conversely, represents the maximum distance between country i and other
if the weight matrix W is measured using the normalized countries in the global network. Shih [46] suggests that the
column data, this operation exhibits the effect of social proximity of sector i to j can be represent as the extent to
contagion to national innovation performance from exporting which d ij is smaller than d max i . Similarly, if the extent to
or cited countries. The degree of technological knowledge
diffusion via import value or frequency of patent citations which d ij is smaller among countries than d max i , it
from countries i to j is represented by ITD ji . Summing the demonstrates the proximity of country i to j.
row ( ITDij ) and column data ( ITD ji ) can investigate the
wij =
(d max i − dij )v , k ≠ i (8)
∑ (d max i − dik )
influence on the performance behavior of national innovative
capacity of the degree of technological knowledge diffusion k

via trading or citing partners. According to Burt [40], the

exponent v frames the scope of the influencing process on V. RESULTS AND DISCUSSION
ego conception, and a high value indicates a strong
relationship between the closet alters. The weight of influence This study examines national innovation capacity using
wij is constituted as follows: social contagion effects, the cohesion model and the
(ITDij + ITD ji )v , k ≠ i (6)
structural equivalence model via international diffusion of
embodied and disembodied technology. This section presents
wijC =
∑ ik ITD + ITD ki )v
the results of global technology contagion effects.

A. Contagion effects
2. Structural Equivalence Model Equation (4) tests contagion effects, and this study
As for the structural equivalence model, measuring the examines the intensity of such effects on national innovative
extent to which country i and country j requires examining capacity at the global level, as follows: Equation (6) is
Euclidean distance, which is the most common method used applied in Eqn. (4) to examine the cohesion model; Eqn. (7)
by sociologists to measure degree of structural equivalence, and (8) are incorporated into Eqn. (4) to analyze the structural
the value of which ranges between zero and one. In this equivalence model.
particular case, when this distance equals zero it means that This part represents the contagion effects, cohesion model
the two actors are precisely structurally equivalent. Since the and structural equivalence model through international
structural equivalence model measures the relations of the diffusion of embodied and disembodied technology on NIC
actors in terms of trading or patent citations, row data and performance, specifically patent output. This study observes
column data are included in the Euclidean distance equation. 42 countries during 1997 to 2002. Owing to time lag of
Here, Ri denotes the summation of the degree of technological innovative realization, this study focuses on patent output
knowledge diffusion via export values or frequency of patent during 2000 to 2005.
citation to each country in row i, and Ci represents the Table 1 reveals that all models are significant. As for the
summation of the degree of technological knowledge relations between the contagion effects and patent output in
diffusion via import values or frequency of patent citation each country as demonstrated by models 1 and 3, the
from each country in column i. If cohesion mechanism exhibits unexpected negative effects via
ITDik ITD jk and ITDki ITDkj , then countries i and j are embodies and disembodies technology diffusion. However,
= =
Ri Rj Ci Cj regarding the structural equivalence mechanism, models 2
structurally equivalent, demonstrating that the degree of and 4 demonstrate positive and significant relationships
technological knowledge diffusing occurring through their between the contagion effects and NIC performance in each
exports or patent are cited the duplicate proportions of country. This study infers that countries lean more towards
outcomes to every other country; and the degree of influencing national innovative capacity through mimicking
technological knowledge diffusion occurring through their the behavior of competitors than that of communication
imports or patent cite the duplicate proportions of input from partners. Furthermore, comparison of the contagion effects in
each country. Consequently, the following is used to measure Table 1 reveals that the structural equivalence mechanism
Euclidean distance. through embodied technology diffusion outperforms the

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cohesion mechanism in terms of influencing national cohesion mechanism in terms of influencing national
innovative capacity, supporting hypothesis 5. Regarding innovative capacity, supporting hypothesis 6. Thus, the study
disembodied technology diffusion, the structural equivalence findings support hypotheses 3, 4, 5 and 6, and do not support
mechanism remains more positive and significant than the hypotheses 1 and 2.


Dependent variable=(PATENTS)j,t+3

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6

Embodied spillover via Cohesion -0.463 -0.189

mechanism (-8.273) (-3.580)
Embodied spillover via
0.517 0.518
Structural equivalence
(9.568) (9.804)
Disembodied spillover via -0.642 -0.120
Cohesion mechanism (-13.257) (-3.843)
Disembodied spillover via
0.917 0.844
Structural equivalence
(36.533) (27.070)
Significance 0.000 0.000 0.000 0.000 0.000 0.000
R2 0.214 0.268 0.412 0.842 0.304 0.851
Note: Numbers represent standardized beta coefficients; t-values are in parentheses; all standardized coefficients are significant at the 0.001 level.

These empirical results confirm that the contagion effect knowledge and techniques on manufacturing[56], and it
in this study seems not entirely consistent with prior works [9, cannot learn the technology completely. Acquiring
40, 45, 48]. Therefore, this study will discuss the reasons for knowledge involves not simply purchasing or trading goods,
these results, providing broader perspectives on exploring the but rather systematic and purposeful knowledge-based
influence of national innovative capacity through two learning and construction [57]. Developing countries do not
mechanisms of the contagion effect. exert a valid influence on innovative activity via the
embodied technology of developed partner countries, but
B. The effects of Contagion on NIC performance such technology does increase their production efficiency [54,
1. Embodies forms 58]. At the global level, the several higher innovative
International technology diffusion in the cohesion capacity countries flow their technology into numerous lower
mechanism, the embodied technology diffusion negatively innovative capacity countries, leading to technology diffusion
influences national innovation capacity performance, which negatively impacting cohesion mechanism based on NIC
appears inconsistent with previous research. Theoretically, performance. Additionally, the technological-gap theory[59]
international technology diffusion positive affects both ego and product life cycle theory[15] regard technological
and alter countries [24, 53]. However, in this study, diffusion as hierarchical diffusion. According to international
international technology diffusion negatively affects technology diffusion with global stratification patterns [15,
innovative capacity; that is, the more interact its partner 21, 27, 48, 60, 61], the findings of this study are consistent
countries, the more the innovation capacity of those countries with those of previous works.
is reduced. The reverse effects are observed when this Contrarily, the structural equivalence mechanism via
investigation include developed and developing countries and embodied technology significantly and positively influences
those countries develop new-to-the-world technology NIC performance. Model 2 represents countries that are more
differently[11]. On the one hand, developing countries import inclined to utilize mimicking behavior with structurally
embodied technologies form developed countries to upgrade equivalent competitors through trading embodied
their productivity and increase efficiency [54]; furthermore, technological commodities. This mechanism demonstrates
developed countries export numerous types of machinery and that a ego countries and the alter countries are competitors;
equipment to developing countries, while developed restated, they may not communicate directly via embodied
countries increase a positive effect to developing countries technology exchanges, but their similar network position
innovative capacity. Therefore, lower innovative capacity leads them to communicate indirectly by trading with third
countries achieve economic growth and changes in parties [40]. Owing to the existence of structural equivalence,
productivity efficiency through the embodied technology of a given country can mimic the technology of a competitor
the more innovative capacity partner. However, the rent of country with a similar network position, thus influencing
embodied technology transfers to domestic innovative their national innovative capacity. On the one hand, countries
capacity, and is affected by import country absorptive with similar network positions employ similar capabilities to
capabilities[55]. Products just partially contain essential acquire new technologies. On the other hand, while trade

PICMET 2009 Proceedings, August 2-6, Portland, Oregon USA © 2009 PICMET

action from competitors results in more innovative outputs, For structural equivalence mechanisms, the standardized
and owing to competition, a focal country has a similar coefficient is positive and significant. Due to the
reaction and then increases its innovative output, thus multi-collinarity between patent output and patent citation,
influencing national innovative capacity. the structural equivalence model has higher explanatory
This study compares two contagion mechanisms, namely power. However, the diffusion of the structural equivalence
cohesion versus structural equivalence, to determine whether mechanism remains an important issue requiring discussion.
national innovation capacity performance is more similar A country that is structurally equivalent not only has a similar
between countries with social proximity and structural network position to a competitor but also similar
equivalence than between those with social proximity of technological capabilities to acquire the knowledge of their
cohesion, as stated in Hypothesis 5. A standard error is competitors; disembodied technology via structurally
calculated for the difference between two standardized equivalent mechanism is more easy to diffuse. Since
coefficient estimates of structural equivalence and cohesion disembodied technology diffusion is termed an active
models, with a t test applied to assess the significance of the technology spillover, direct learning or purchase of foreign
difference. The standardized coefficient estimate measured by technological knowledge involves explicitly using
the structural equivalence model significantly exceeds that disembodied knowledge in the form of patent applications.
measured by the cohesion model, and the R2 of the former While the actions of competitor countries stimulate increased
model is significantly larger than that of the latter model. patent output and raise national competitiveness, a ego
The analytical results support Hypothesis 5, indicating that country in the same network position performs similar and
the structural equivalence model exerts a more significant active R&D to increase their innovation activity. When other
contagion effect than does the cohesion model on the countries remain in a position of structural equivalence with a
diffusion of embodied technology affecting global NIC ego country, their conduct positively affects innovation
structures. Restated, NIC performance is triggered more by capacity. Consequently, alter countries, as the role of
the influence of competitors than that of cohesion partners. competition in the same network position, provide a ego
In terms of embodied diffusion, countries prefer to learn country with positive feedback regarding national innovation
from the experiences of others with a similar network capacity performance via international technology diffusion.
position, since such learning can positively influence national By comparing two contagion mechanisms of disembodied
innovation performance; countries can react to competitors technology diffusion, as presented in Hypothesis 6, this
who are structurally equivalent in terms of embodied investigation applied a t test to assess the significance of the
technology diffusion. Policy-making as a means of difference. The standardized coefficient estimate measured
influencing innovative capacity cannot be performed in using the structural equivalence model significantly exceeds
isolation and decisions of other cohesive or structurally that measured using the cohesion model, and the R2 of the
equivalent countries should be considered in policy-making. former model significantly exceeds that of the latter model.
This result is consistent with that of Koka et al. [9], namely Analytical results still support Hypothesis 6, indicating that
that countries seeking to develop a profitable trading policy the structural equivalence model yields more significant
must ensure their policies fit those of other related countries. contagion effect than the cohesion model on the diffusion of
disembodied technology affecting NIC in a global structure.
2. Disembodied forms That is, national innovative capacity performance is
For diffusion of disembodied forms, the standardized influenced more by competitive countries than cohesion
coefficient of the cohesion model is negative and significant. partner countries.
Like embodied technology diffusion, disembodied In terms of disembodied diffusion, the alter countries with
technology is significantly diffused with global stratification similar network positions remain the main influences on
patterns, and this result can be discussed from two national innovative capacity of ego countries. However,
perspectives. First, this investigation at the global level international pure knowledge spillover proves effective not
included developing countries and developed countries; it only when technology is obtained from abroad for less than
may exhibit the reverse effect of cohesion mechanism due to the original cost to domestic inventors, but also when a
the large differences in innovative capacity between country can absorb and apply technology from abroad.
developing and developed countries. Second, as discussed Additionally, direct learning regarding explicit knowledge of
above, owing to low innovative capacity and insufficient foreign competitors increases domestic technological
intellectual property, developing countries must cite more capability and can be actively adopted for innovation
cohesive partner’s disembodied technology from to apply efficiency.
their R&D and promote their technological advances[54].
Consequently, at the global level, the strong relationship 3. Comparison for embodied and disembodied technology
within cohesive groups has side effects on innovative diffusion
capacity. Therefore, the effect of disembodied technology Empirically, embodied and disembodied diffusion are not
diffusion among countries within a cohesive group exerts a easily distinguishable, but the measurement in terms of
negative influence on innovative capacity. empirical data can capture and differentiate either embodied

PICMET 2009 Proceedings, August 2-6, Portland, Oregon USA © 2009 PICMET

or disembodied diffusion. Comparing Models 1 and 3, R&D activities are rent spillovers and pure knowledge
involving the coefficient of cohesion mechanism, or Model 2 spillovers. Rent spillovers occur through embodied
and Model 4, involving the coefficient of structural knowledge flows; pure knowledge spillovers are performed
equivalence mechanism, demonstrates that disembodied via disembodied knowledge flows. However, heterogeneous
diffusion influences national innovative capacity significantly potential knowledge is affected by the network structure of
more than embodied diffusion does. This result indicates a technology diffusion within the international economy. Two
difference in spillover rigidity between embodied and different diffusion mechanisms, the cohesion mechanism and
disembodied technology diffusion. Notably, rent spillovers the structural equivalence mechanism, exist to examine the
resulting from embodied technology diffusion are more rigid contagion effects of two actors that are social proximate, so
than pure knowledge spillovers resulting from disembodied that one actor's performance of innovative capacity can be
technology diffusion. expected to trigger the other actor's performance. The
Utilizing specialized and advanced intermediate products cohesion mechanism, which is based on diffusion by direct
that have been invented overseas demonstrates the implicit contact and communication, measures the influence upon
usage of technological knowledge embodied in foreign innovative capacity performance by cohesion partners.
intermediate goods for producing final output. Furthermore, Conversely, the structural equivalence mechanism, which is
the technological knowledge embodied in trading based on diffusion by similarity of network position,
intermediates is not available to domestic inventors. measures the imitation between competitors as a result of
Embodied technology diffusion is thus considered a passive conformity to prevalent norms within structurally similar
technology spillover that primarily influences changes in sectors.
productivity efficient [54]. Restated, embodied technology This study employed the two contagion effects to examine
diffusion is rigid to knowledge spillover, which is a relatively the international technology diffusion via two social
weak form of international technology diffusion that contagion mechanisms, and empirically tested and compared
influences national innovative capacity. the two mechanisms by studying a sample of international
Direct acquisition of foreign technological knowledge technology diffusion taken from global economic structures.
involves explicitly using disembodied knowledge in the Social network analysis has been successfully applied in
forms of formulas, blueprints, drawings, and patent studying the contagion effects of international technology
applications [62]. Pure knowledge spillover occurs diffusion to demonstrate the usefulness of the proposed
internationally if technological knowledge is obtained from methodologies and to find the contagion effect that most
overseas for less than the original cost to domestic inventors. accurately predicts mimetic behavior. From the empirical
Direct learning regarding foreign technological knowledge results, this study finds the distinguishable influence upon the
increases the domestic technological stock of knowledge that performance of national innovative capacity between
can be actively adopted for innovation and that influences countries with different technological diffusion forms and
technical change. Disembodied technology diffusion is less social proximity. Embodied or disembodied technology
rigid for knowledge spillover, and is termed active diffusion through structural equivalence mechanisms has
technology spillover. More specifically, disembodied significant influence on the performance of national
technology diffusion influences national innovation capacity innovative capacity. However, a country is affected more by
more significantly than does embodied technology diffusion. its structurally equivalent competitors than by its cohesion
partners. In other words, countries are more inclined to take
VI. CONCLUSION AND REMARKS competitors as a paradigm through international technology
diffusion based on their developing environment. Therefore,
Since globalization, many forms of international while the leader of a given country makes policies on
cooperation, such as global supply chains and globalized technology development via international cooperation, a
R&D, heterogeneously promote a country towards achieving country can depend on its internal capability and deliberate
technological progress and driving economic growth through the action of its competitors to accurately shift its policy.
international technology diffusion. So does the need to Moreover, embodied or disembodied technology
understand the mechanisms characterizing international diffusions through cohesion mechanisms have negative
technology diffusion, to identify major influences upon the affects on the performance of national innovative capacity,
performance of national innovative capacity. This study which can be regarded as international technology diffusion
examines the influence upon national innovative capacity by via global stratification patterns. In other words, merely
network contagion effects of cohesion mechanisms and utilizing a cohesion partner’s technology without absorbing
structural equivalence mechanisms through international the embodied or disembodied technological rent spillover
diffusion of embodied and disembodied technology. into domestic innovation activity will more deeply embed a
Patents are not only acknowledged as providing a reliable country into a large exchange system.
and unbiased indication of the innovation effort being Embodied and disembodied technology diffusions
expended by a country, but also regarded as a country’s R&D distinguishably influence the performance of national
performance. Two types of potential knowledge generated by innovative capacity. Embodied technology diffusion is more

PICMET 2009 Proceedings, August 2-6, Portland, Oregon USA © 2009 PICMET

rigid to knowledge spillover and more strongly influences 2002.

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United Kingdom United States

PICMET 2009 Proceedings, August 2-6, Portland, Oregon USA © 2009 PICMET


Variable Full variable name Definition Source
Innovative output
Patents j,t+3 International patents granted in All types of patents granted by USPTO patent database
year t+3 USPTO in country j in year (t+3)
R&D $ j,t Aggregate R&D Expenditure Total R&D expenditures IMD World Competitiveness Report
Contagion effects 1
Cohesion (embodied) Interaction within cohesive Interaction within cohesive group Global Trade Information Services,
group via embodied form of via trade flows Inc. (GTI)
Cohesion (disembodied) Interaction within cohesive Interaction within cohesive group NBER Patent Citations Database
group via disembodied form of via patent citations
Structural equivalence Relation in Structural Relation in Structural equivalence Global Trade Information Services,
(embodied) equivalence via embodied form via trade flows Inc. (GTI)
of diffusion.
Structural equivalence Relation in Structural Relation in Structural equivalence NBER Patent Citations Database
(disembodied) equivalence via disembodied via patent citations
form of diffusion.
1. Trade flow data are based on imports of capital goods; Patents are granted by USPTO.