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The number of students doing significant research in the area of Engineering and Technology
Management was demonstrated by the number of nominations received. The selection of the
award winner was difficult because of the excellent quality of all the submissions, but one paper
stood out for its contributions to the field of Engineering and Technology Management.
AUTHOR: Hung-Chun Huang
UNIVERSITY: National Chi Nan University, Taiwan
PAPER TITLE: “Constructing National Innovative Capacity in
Globalization: The Network Autocorrelation Perspective”

Abstract: Globalization has highlighted change in national technology capability. Exogenous

factors drive a country towards technological progress, and drive economic growth via
international technology diffusion. Previous studies have stressed that innovative capacity is
determined by regional or local social systems. This paper reconsiders these studies and develops
a new perspective of evaluating national innovative capacity. This method employs a network
autocorrelation model which simultaneously considers both endogenous determiners and
exogenous influence on national innovative capacity. Data from 42 countries from 1997 to 2002
are utilized to empirically examine their network relationship and innovation performance. The
analytical results demonstrate the effect of domestic determiners within a global context and
show that their differential context attribute influence on national innovative performance is
influenced more by network positioning than by network partnership. They furthermore exhibit
important differences between the alternate channels of international technology diffusion and
their differential effects on innovative performance. This finding provides a new perspective for
science and technology policy makers.

Please cite this article as:

Huang, H.-C., H.-Y. Shih, Y.-C. Wu, "Constructing national innovative capacity in globalization:
The network autocorrelation perspective." Technology Management for Global Economic Growth
(PICMET), 2010 Proceedings of PICMET '10:.
PICMET 2010 Proceedings, July 18-22, Phuket, Thailand © 2010 PICMET

Constructing National Innovative Capacity in Globalization:

The Network Autocorrelation Perspective
Hung-Chun Huang, Hsin-Yu Shih, Ya-Chi Wu
National Chi Nan University, International Business Studies Dept., Taiwan

Abstract--Globalization has highlighted change in national nations as a result of close interactions, leading to political
technology capability. Exogenous factors drive a country reciprocity and complicity [9, 10]. However, do these
towards technological progress, and drive economic growth via international activities affect national innovative capacity?
international technology diffusion. Previous studies have What kinds of international relationships have a greater
stressed that innovative capacity is determined by regional or
local social systems. This paper reconsiders these studies and
develops a new perspective of evaluating national innovative The existing literature provides many important insights,
capacity. This method employs a network autocorrelation model but many of the questions we raise above still remain
which simultaneously considers both endogenous determiners unanswered. In particular, prior study has not adequately
and exogenous influence on national innovative capacity. Data dealt with the many important differences between the
from 42 countries from 1997 to 2002 are utilized to empirically alternate channels of international technology diffusion and
examine their network relationship and innovation performance. their differential impact on national innovative capacity.
The analytical results not only demonstrate the effect of Meanwhile, changes in national technology capability caused
domestic determiners with differences global context and their by globalization are beginning to show. Exogenous factors
differential context attribute influence on national innovative drive a country towards technological progress, as well as
performance more by network positioning than by network
driving economic growth via international technology
partnership, but also exhibit important differences between the
alternate channels of international technology diffusion and diffusion. Importantly, while this phenomenon related to
their differential effects on innovative performance. This finding indigenous technological development is best understood as a
provides a new perspective for science and technology policy social network issue, there exist few explicit social network
makers. analyses of these questions. Remedying both of these
deficiencies should be an important goal of future research.
I. INTRODUCTION This paper is organized as follows. Section 2 summarizes
the central issues of national innovative capacity related to
National innovative capacity is generally regarded as a the issues of international technology diffusion. Section 3
country’s institutional potential to sustain innovation, and has presents research hypotheses related to the testing and
been studied by numerous scholars. Suarez-Villa [1] proposed comparison of the various model effects. Section 4 examines
this essential concept and a measure of it in terms of the measurements and models of social network analysis
patenting rates. Furthermore, Furman et al.[2] theorize that employed to investigate the autocorrelation model. Section 5
national innovative capacity reflects more fundamental then empirically tests the research hypotheses, and discusses
determinants of innovation, offering countries a means of the theoretical and managerial implications. Section 6 offers
influencing national innovative capacity. Technology is some conclusions.
closely related to national cultural and social settings [3].
Prior study stressed the innovative capacity determined by II. LITERATURE REVIEW
regional or local social systems. However, a healthy
innovation infrastructure is essential but insufficient by itself This section introduces endogenous and exogenous
to support the environment required to achieve continuous perspectives of national innovative capacity along with the
innovation [4]. Related investigations of R&D management international diffusion of embodied and disembodied
stress the need for interaction between developers and global technological influence on NIC performance.
users of new technology to enhance development and
execution processes [5-8]. Consequently, can an endogenous A. The Determinants of National innovative capacity
perspective fully determine national performance in terms of The National Innovative System is the interactive network
innovative capacity? among public, private, and academic sectors related to the
International interactive behaviors effect countries in production and diffusion of innovation to constitute the
terms of their economic performance, politics and culture direction of development of national innovative capacity.
primarily due to the development of international cooperation, National innovative capacity has been defined as the
such as global supply chains and globalized R&D. Therefore, institutional potential of a country to sustain innovation. On
when a country develops its science and technology policy, the basis of this idea, numerous scholars (e.g. [11]) have
its decisions depend not only on its own situation, but also on studied how endogenous growth theory works and
the advice or experience of other nations. Theories of coordinates the elements of NIC. Furman et al. [2]
interdependence support mutual interdependence between definitively proposed the determinants of national innovative

PICMET 2010 Proceedings, July 18-22, Phuket, Thailand © 2010 PICMET

capacity, claiming it is based on three distinct areas; quality technology transfer or deployment [3]. Technology diffusion
of the common innovation infrastructure, quality of the is influenced by innovations and technical updates over time.
cluster-specific innovation environment, and quality of Vernon[16] argues international product life cycle theory
linkages. More specifically, common innovation based on technology diffusion; however, this theory focuses
infrastructure includes the stock of knowledge, GDP per upon production sites shifting process and trade flow rather
capita, the amount of scientific and technical skills devoted to than the influence of technology diffusion on innovation
the production of new technologies, R&D personnel (FTE), capacity. Countries acquire innovation technology in two
R&D expenditure, national investments and policy choices main ways; enforcing domestic technology development and
(openness), expenditures on higher education, intellectual innovation capacity, and obtaining foreign advanced
property protection and openness to international competition. technologies via international technology diffusion. Griliches
Private R&D funding signifies the cluster-specific innovation [17] divides international technology diffusion into rent
environment and university R&D performance reveals the spillover and pure knowledge spillover.
linkages of the common innovation infrastructure and Rent spillover refers to the price of new products for
industrial clusters, whose intensity will influence the extent to which innovation technology knowledge exists, and cannot
which the potential for innovation evoked by the common fully reflect the high quality of knowledge innovation in the
innovation infrastructure is translated into specific innovative process of commercialization. A country purchasing
outputs in a nation’s industrial clusters. intermediate products at certain price that does not mirror
Furthermore, pervious studies (e.g. [1, 2] ) have their actual value can enjoy the benefits of R&D conducted
developed a suitable measure based on patenting rates as the by other countries; that is, the purchasing country employs
indicator of NIC. Accordingly, patents are acknowledged to passive technology spillover or embodied technology
provide a reliable and unbiased indication of national diffusion [18] to supply their innovation capacity. The
innovation effort [12, 13]. One of the clearest indicators of activities of international diffusion of embodied technology
innovation performance is the rate of take-up of patents are observable based on trade flows and foreign direct
issued by the US Patent and Trademarks Office (USPTO). investment [19, 20]. Moreover, most related studies (e.g.
Innovative capacity primarily depends upon the technological [21-25]) demonstrate a significant positive relationship
level and sophistication of an economy, and the investments between total factor productivity and international trade for a
and policy choices of both institutions and the private sector given nation as evidence of international research spillover.
[2]. Consequently, measuring national innovation output New growth theory argues that the marginal profit from
includes patents, publications in scientific journals, capital investment is not certain to decrease over time, and
copyrights, trademarks, etc. All of these are products of accumulated capital can sustain long-term GDP per capita;
innovation efforts, and copyrights and trademarks even this theory also deems knowledge to be the public goods in
represent direct indicators of innovative output[2]. This work, capital accumulation and creation of an increasing rate of
based on previous studies (e.g.[1, 2, 14]) therefore return via the spread of information. A nation benefits from
determines patent output as innovative output. Additionally, spillover through trade partner investment knowledge.
Furman & Hayes [4] note that PATENTS correlated Consequently, knowledge capital and R&D activities benefit
positively with the true level of new-to-the-world innovative national economic growth. Smith & White [26] demonstrate a
output in their model, and that it appears to be the best positive relationship between trade and national
available indicator for comparing national innovation output competitiveness by exploring the dynamic configuration of
across countries over time. Trajtenberg [13] even considers global economics through trade flows. Coe et al. [27] find it
international patents “the only observable manifestation of better to measure trade-related spillover using trade in capital
inventive activity with a well-grounded claim for goods rather than total trade. This work investigates imports
universality.” Therefore, measuring international patents is of machinery and equipment for diffusing information on
the most useful available measure for comparing innovation embodied technology. Countries exchanging goods through
output across countries and over time [4]. Consequently, this international trade generate rent spillover.
study adopts USPTO patenting activities by sample countries Pure knowledge spillover, as well as the inherent
to measure NIC. knowledge simulated and adopted by others, emerge
primarily by externalities in the form of flows of research and
B. The exogenous influence of the global network development personnel, mobility of knowledge,
Globalization; global outsourcing, global design and dissemination via cooperation, international technology
global supply chains carry out international science and learning or the direct purchase of foreign technology
technology diffusion. More specifically, diffusion is a process knowledge. Such knowledge spillover makes leaders of
that involves spreading certain innovation information by enterprises or nations reluctant to accept unavoidable spread
participants in a social system through particular channels via numerous noncommercial channels. Thus this kind of
[15]. Diffusion is an exceptional form of communication, and diffusion can be called active technology spillover. The
involves participants providing and sharing information. disembodied technology diffusion measured in the form of
Diffusion thus can refer to the dissemination of knowledge, formulas, blueprints, drawings, patent citations, and so on

PICMET 2010 Proceedings, July 18-22, Phuket, Thailand © 2010 PICMET

[28]. The advantages of innovation activities are reflected in common approach to operating a communication process in
the process of commercialization[18]; that is to say, an social network analysis. While the ego hesitates to make a
effective method of measuring national competitiveness in a decision, he will seek alters who he trusts for consultation,
disembodied form is through patent citation frequency. mostly owing to the relationship of cohesion between them.
Pure knowledge spillover results from disembodied The more intimate and frequent interactions between ego and
knowledge flows, including licensing, patent citations, or alter, the greater the influence of alter on the opinion and
outsourcing agreements. Griliches [19] suggests that patent behavior of the ego [37]. The frequency, intensity, and
citations can be measured as a disembodied form of diffusion. closeness of interaction among cohesive actors leads to
Moreover, Helleiner [29] indicates that based on the increased recurrence of action than it does among
definition of a patent, technology includes not only legally non-cohesive actors, not only increasing the opportunity to
guaranteed patents and trademarks but also the sophisticated transmit social clues [43], but also resulting in network
techniques necessary to produce tangible merchandise. constraints among them. Some social network researchers
According to Jaffe et al.[30], Eaton & Kortum[31], and Hu & interpret cohesion from a group perspective. Festinger [44]
Jaffe[32] international patenting is a proxy for the channel of defines cohesion as “the result of all the forces acting on all
international diffusion of disembodied technology. Patents members to remain in a group.” Actors in cohesive groups
can indicate intellectual property and measure technology exhibit greater behavioral conformity and accordant
innovation performance [33, 34]. Numerous researchers have relationship than those in less cohesive groups. Social
taken frequency of patent citations as an indicator of national structure is a configuration of social relations among actors
innovation competitiveness (e.g.[35, 36]) , with the where the relations involve exchange of cherished items that
importance of a patent increasing with the frequency of can be tangible (substance) or intangible (knowledge,
citations. Patient citations thus are measurable innovation information). Because of exchange, international trade yields
indicators of national competitiveness. Hence, this study increased opportunities for information sharing and thus
adopts patent citations as a means of disembodied technology government policy similarity between partner countries [10].
diffusion. Countries citing their patents in relation to others This study thus examines the influence of cohesion
generate pure knowledge spillover. mechanisms on national innovative capacity performance.
Another contagion process is social comparison. Ego
C. Perspective of Network Autocorrelation compares himself with those alters who he sees as similar in
Although embodied and disembodied technology network aspects [37]. The comparison is actuated if actors are
diffusion effect a national innovative capacity performance, competing [40]. Therefore, the comparison is most frequently
previous studies have not adequately dealt with the many operated using the concept of equivalence. Equivalent actors
important differences between the alternate channels of are similarly embedded in the network. The most
international diffusion and their differential influence on comprehensive conception of equivalence is structural
national innovative capacity. Furthermore, while the equivalence [45]. The actors in the structural equivalence
questions related to external environments are best mode exhibit a similar pattern of relations to other actors in
understood as global network issues, there exist few the social configuration [43], because individuals
explicitly social network analyses of these questions. In encountering uncertainty may refer to structurally equivalent
network analysis, Leenders [37] proposes a type of process actors to simulate appropriate responses. Burt [40] proposes
typically modeled as a network autocorrelation. The behavior that decision-makers are socialized via the symbolic
and thought of actors are not only determined by the role-playing of placing themselves in the position of others.
constraints and the opportunities via a social system (local This study thus applies the structural equivalence model to
affects) but also affected by others (interactive affects). The examine the influence of national innovative capacity on
local affects are indigenous determinants of NIC and performance.
interactive affects are social influences of globalization. Lundvall [46] argues that the production and diffusion of
Social influence occurs when actor behavior, attitudes, or new knowledge occurs in the mutual learning of members,
beliefs involuntarily follow those of others in the same social and that is conducive to the development and diffusion of
system. Numerous researchers are interested in the contagion new technology. The network autocorrelation model
process of the innovations diffusion (e.g. [38-40]). Actors illustrates the ego’s decision as deriving from his own status,
tend to be effected by the opinions and behaviors of education, and income (intrinsic opinion), along with
significant others belonging to the cohesive group or interaction amongst significant others (contagion). This study
occupying a position of structural equivalence. This influence observes both the determinants of national innovative
process is known as the contagion effect. Contagion is often capacity and the influence of social proximity on national
used to describe the processes involved in social influence innovation performance; it not only can adequately explore
[41, 42]. Social influence theory involves two processes: the global formulation of nation innovative capacity, but in
communication and comparison [37]. doing so can identify a similar mode of international
Communication based on social influence involves direct interaction.
contact between ego and alter[40]. Cohesion is the most

PICMET 2010 Proceedings, July 18-22, Phuket, Thailand © 2010 PICMET

III. HYPOTHESES Hypothesis 2: National innovative capacity is not only

determined by local affects but also influenced by the
A. The Determinants of National Innovative Capacity interactive proximity of embodied technology.
In an autocorrelation model, the ego’s behavior is not only Hypothesis 2a: The interactive proximity of embodied
influenced by others (interactive affects), but by the ego's technology by cohesive partner countries exerts
intrinsic conception and status (local affects). This study positive and significant influence on national
therefore adopts the Furman et al. [2] proposal, whereby the innovative capacity.
determinants of national innovative capacity are used to Hypothesis 2b: The interactive proximity of embodied
examine how innovative output is influenced by local affects. technology by structurally equivalent competitive
This study thus hypothesizes the following: countries exerts positive and significant influence on
Hypothesis 1: National innovative capacity is significantly national innovative capacity.
determined by local affects. Hypothesis 3: National innovative capacity is not only
Hypothesis 1a: National innovative capacity is positively determined by local affects, but also influenced by
and significantly affected by the quality of the interactive proximity of disembodied technology.
common innovation infrastructure. Hypothesis 3a: The interactive proximity of disembodied
Hypothesis 1b: National innovative capacity is positively technology by cohesive partner countries exerts
and significantly affected by the quality of the positive and significant influence on national
cluster-specific innovation environment. innovative capacity.
Hypothesis 1c: National innovative capacity is positively Hypothesis 3b: The interactive proximity of disembodied
and significantly affected by the quality of linkages. technology by structurally equivalent competitive
countries exerts positive and significant influence on
B. The autocorrelation model national innovative capacity.
The social influence process of cohesion mechanism is
focused on the interaction between the ego and alter. When C. Comparison
the ego encounters tough questions, its attitude and conduct Although two different contagion mechanisms may exist
will lean towards alters within the same group. The cohesion in social proximity, numerous scholars argue that ego
model incorporates the opinions, behaviors, attitudes, and behavior is more likely to be effected by the alter having the
policies connecting actors. That is to say the policy making of same network position than by alters interacting with each
a given country tends to promptly follow that of an alter other [10, 38-40]. Consequently, the interactive affects of the
country, since both share a common assessment of the costs structural equivalence mechanism should positively and
and benefits of interaction [40]. Consequently, this study significantly exceed the cohesion mechanism.
assumes that countries belonging to the same group can Furthermore, embodied and disembodied technologies
diffuse, embodied and disembodied technology through provide important alternate channels of international
cohesion mechanisms and then further influence national technology diffusion. This study adequately deals with their
innovation performance. differential impact on national innovative capacity. Embodied
On the other hand, Burt [47] argues that ego behavior is and disembodied technology generate differential knowledge
predicted more accurately by structural network position than and technology spillover to influence innovative capacity
by interactions with others. Due to competition, competitors performance, however the differential form of knowledge
can readily follow changes made by egos [37]. Actors accept conducts distinguishable learning efficiency to generate
innovations when they see them being applied by others innovation. Consequently, this study assumes that NIC
structurally equivalent to themselves. Owing to similarity, performance is affected by an autocorrelation model, with the
actors become aware of competition, and then take others as a disembodied technology diffusion producing significant
behavioral paradigm. Therefore, the more similar the influence on national innovation performance, much more
structural position of the ego to alters, the more likely that than embodied technology does. The hypotheses used to
alters will substitute for the position of the ego [40]. compare the performance of national innovative capacity are
According to Burt[40], this study determines that actors examined below:
within the structural equivalence model are competitive with Hypothesis 4: In terms of embodied technology diffusion,
each other. Burt [40] and Shih [39] applied structural national innovative performance is influenced more by
equivalence to the study of industrial structures, and also similarities between countries with structurally equivalent
concluded that actor adoption behavior is triggered by proximity than with cohesive proximity.
structurally equivalent others within the network. Hypothesis 5: In terms of disembodied technology diffusion,
Consequently, this study assumes that among countries that national innovative performance is influenced more by
are structurally equivalent, embodied and disembodied similarities between countries with structurally equivalent
technology can be diffused through structural equivalent proximity than with cohesive proximity.
mechanisms and influence national innovation performance. Hypothesis 6: National innovative performance is more
This study thus hypothesizes the following: significantly affected by disembodied technology
diffusion than by embodied technology diffusion.

PICMET 2010 Proceedings, July 18-22, Phuket, Thailand © 2010 PICMET

IV. METHODOLOGY definitions.

A. Data B. Measurement
This investigation employs a sample of 42 countries over Leenders[37] proposes that ego’s ideas and conduct are
the period from 1997 to 2002, ranked according to the Global not solely determined by significant others (interactive
Competitiveness Index of the World Competitiveness affects), but by response to various confinements and
Databank. This study mainly refers to the network opportunities bounded in the social system (local affects).
autocorrelation model, so the dataset is inclusive of local This type of influence process in sociology is typically
affects and interactive affects. constructed in an autocorrelation model on the following
The dataset of local affects is based on the determinants of equation:
national innovative capacity proposed by Furman et al. [2].
yi U yi  XE  H , ……………………………(1)
They include three factors;, the quality of common
innovation infrastructure, the cluster-specific innovation
Here, XE denotes actors’ intrinsic opinion which would
environment, and quality of linkages amounting to 13
elements. Due to the significance of variables and the be shown in the absence of social influence. The difference
collection of dataset, this study applies 8 elements as local between interactive and local affects is reflected in the
affects, including GDP per capita, GDP, total R&D personnel external part (matrix W) and the internal part ( XE )[37].
(FTE), R&D expenditure, openness, higher education
expenditure as a percentage of GDP, R&D expenditure C. Local affects
funded by industry as a percentage of GDP and R&D In the local affects section of XE , this study adopts the
expenditure performed by university as a percentage of GDP. elements of Furman et al. [2] suggestion of a local affects
Moreover, Furman et al. proposes patent output as the model; including GDP per capita, R&D personnel (full-time
outcome of national innovative capacity, and thus this work equivalent), international trade openness, higher education
chooses patents output as the NIC performance[2]. share as a percentage of GDP, R&D funded by private sector
The interactive affects dataset contains four categories: as a percentage of R&D expenditure and R&D performed by
bilateral trade in exports and imports, frequency of patent universities as a percentage of R&D expenditure. Testing the
citations, aggregate R&D expenditure and international significance of local affects on the performance of national
patents granted in year t+3. Trade flow data is mainly innovative capacity is based on the following equation:
obtained from Global Trade Information Services, Inc..
However, data on imports are more accurate than those on
yi XE  H , ………………………(2)
exports [26, 48, 49], and this study adopts an importing
dataset. Furthermore, Coe et al. [27] found that it is better to The above parameter estimates and infers on the basis of
measure trade-related spillover using trade in capital goods the autocorrelation model hinging upon the selected
than total trade. specification of weight matrix W. This matrix represents the
For frequencies of patent citations, the dataset consists of influence process assumed to be present in the network and
patents granted by the United States Patent and Trademark can operate in many different ways.
office, and frequencies of patent citations are obtained from
the NBER Patent Citations Database [50]. Owing to technical D. Interactive affects and International technology diffusion
difficulties in analyzing raw data, this investigation gathers Burt [40] designed a theoretical framework for the
data for the periods from 1997~2002 and contains contagion effects of cohesion and structural equivalence in
frequencies of inter-country patent citing as cited. As for the the social network by observing the diffusion of technological
total R&D expenditure of each country, this investigation innovation. Thus, this study adopts the social contagion
refers to World Competitiveness databank, IMD. model devised by Burt [40] to forecast international
PATENTS represents the number of patents granted in technology diffusion among countries. Since total national
year t+3 by the USPTO due to the average lag between the R&D expenditure is positively and significantly related to
application and approval by the USPTO and between the international technology diffusion [17, 51], Xu & Wang[52]
measures of innovative capacity and the observed realization and Shih & Chang[49] propose that international technology
of innovative output [2]. Considering the completeness of diffusion is measured based on national R&D expenditure,
data collection, this investigation selects 42 countries as the which must be multiplied by a weighted coefficient. This
sample, owing to materials for some countries being absent. study considers total national R&D expenditure when
Appendix A lists the countries studied in this work. The measuring the degree of international technology diffusion.
initial levels of innovative productivity and the legacy of Regarding the embodied technology diffusion, this works
historical situations of each country represent different employs trade flows as an interactive measurement. For
influences on the performance of national innovativeness [4], example the quantity of machinery and equipment imported
and thus Appendix A shows both embodied and disembodied in one country is multiplied by the total R&D expenditure in
diffusion countries. Appendix B lists variable sources and another country, and it imports from 42 countries while those

PICMET 2010 Proceedings, July 18-22, Phuket, Thailand © 2010 PICMET

countries export to this country, forming a 42 by 42 matrix. Summing the row and column data can investigate the
Shih & Chang[49] propose that if a certain country imports influence on the performance behavior of national innovative
more capital goods from another country, the net importer capacity from trading or citing partners.
nation will benefit through embodied technology diffusion. As for the structural equivalence model, measuring the
In terms of disembodied technology diffusion, patent relationship between ego countries and alter countries
citations represent the linkage to prior knowledge; that is, the requires examining Euclidean distance. This is the most
frequencies with which a certain country cites patents from common method used by sociologists to measure degree of
another country represent the density of pure knowledge structural equivalence, with a value ranging between zero and
spillovers between the two countries. Patent citations are one. When this distance equals zero it means that the two
measured by citation frequencies, and owing to this reference, actors are precisely structurally equivalent. Since the
if a given country cites patents from 42 countries while their structural equivalence model measures the relations of the
patents are cited by these other countries, this also constitutes actors in terms of trading or patent citations, row data and
a 42 by 42 matrix. This study thus assumes that when a given column data are included in the Euclidean distance equation.
country cites more patents from other countries, the patent The mathematical expression of international technology
citing nation will benefit from disembodied technology diffusion refer Huang & Shih[53] works.
On the other hand, this study employs two types of V. RESULTS AND DISCUSSION
diffusion mechanisms, cohesion and structural equivalence
models, to investigate the differential effects in embodied and This study argues the determinants of national innovative
disembodied technology. As for the cohesion model, the capacity are not merely from local affects; the original
weight matrix between ego countries and alter countries is conception and development constrained by the social system,
measured by row and column data. If the weight matrix is but also from interactive affects; the conception and
measured using the row data, the effects of social contagion development by the social contagion theory. The research
on national innovative capacity from importing or patent hypotheses were tested by regression analysis based on the
citing countries is represented. Conversely, if the weight model in (1) and (2). The influences of local affects are
matrix is measured using the normalized column data, this examined by the (2) and result show in table 1. Model 1 and
operation shows the effect of social contagion to national model 2 present local affects and a network autocorrelation
innovation performance from exporting or cited countries. model is presented from model 3 to model 9.


Dependent variable=(PATENTS)j,t+3
model 1 model 2 model 3 model 4 model 5 model 6 model 7 model 8 model 9
Quality of the common
innovation infrastructure
GDP per capita -0.052*** 0.285*** 0.245*** 0.270*** 0.354*** 0.211*** 0.266*** 0.200*** 0.208***
GDP 0.418***
R&D personnel (FTE) -0.124*** 0.592*** 0.600*** 0.593*** 0.669*** 0.458*** 0.467*** 0.361*** 0.382***
R&D $ 0.678***
Openness 0.040** -0.059 -0.040 -0.060 0.004 -0.040 -0.075 -0.041 -0.029
Ed share 0.008 -0.124** -0.054 -0.079 -0.011 -0.065 -0.066 -0.061 -0.051
Quality of the cluster-specific
innovation environment
Private R&D funding -0.007 0.095 0.190*** 0.102 0.303*** 0.115* 0.073* 0.109*** 0.140***
Quality of linkages
Univ. R&D performance -0.021 0.098 0.109*** 0.092 0.107* 0.087*** 0.034** 0.037** 0.035
Contagion effects
Embodied via Cohesion -0.258*** -0.597*** -0.103***
Embodied via Structural
0.008 0.496*** 0.040
Disembodied via
-0.442*** -0.429*** -0.384***
Disembodied via
0.449*** 0.415*** 0.408***
Structural equivalence
Adjusted R2 0.964 0.501 0.550 0.575 0.613 0.666 0.683 0.834 0.837
Significance 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Observations 252 252 252 252 252 252 252 252 252
Note: 1. Numbers represent standardized beta coefficients. 2. *, p<0.05; **, p< 0.01; ***, p< 0.001

PICMET 2010 Proceedings, July 18-22, Phuket, Thailand © 2010 PICMET

A. Local affects R&D funding and university R&D should be positive

Furman et al. [2] proposes the determinants of NIC, which determents of NIC, however this empirical result does not
are tested by (2) and the result in model 1. This model support hypothesis 1b and hypothesis 1c.
provides an explanation power of 96.4%, which is significant Therefore, to ensure model precision, this study uses co
support for hypothesis 1 ; the local affects in these models are linearity statistics ensuring the model precision and finds
significant overall, but some individual impacts are negative model 1 indicating serious multicollinearity. Belsley et al. [54]
and even insignificant. suggest that if the value of the variance inflation factor (VIF)
In quality of the common innovation infrastructure, is more than 10, it has co linearity with other variables. As a
Furman et al. [2] suggests all variables except openness result of Table 2, two variables, GDP and R&D $ are more
should be positive determents for NIC. However the than 10. This work also demonstrates the correlation analysis
empirical result showed GDP per capita, R&D personnel, and from Table 3 to determine that the variables of GDP and
openness not consistent with pervious studies, therefore this R&D $ are highly correlated with each other, and with R&D
result does not support hypothesis 1a. Additionally, in terms personnel (FTE). So this study deletes these two variables as
of the cluster-specific innovation environment and quality of an adjustment to the local affects model.
linkages, previous studies indicate the variable of private


variables N Mean 1 2 3 4 5 6 7 8
1. GDP per capita 252 15241.89 11311.60 1
2. GDP 252 688963.20 1572249.13 0.377** 1
3. R&D personnel (FTE) 252 165982.89 276543.22 0.124* 0.716** 1
4. R&D $ 252 14739.13 42661.07 0.415** 0.992** 0.687** 1
5. Openness 252 86.55 67.45 0.127* -0.265** -0.317** -0.234** 1
6. Ed share 252 55.47 17.10 0.164** -0.093 -0.043 -0.110 0.084 1
7. Private R&D funding 252 47.01 16.64 0.496** 0.305** 0.216** 0.337** 0.056 0.099 1
8. Univ. R&D performance 252 25.35 14.23 -0.031 -0.236** -0.44** -0.231** 0.164 -0.070 -0.414** 1
Note: ** Correlation is significant at the 0.01 level (2-tailed). * Correlation is significant at the 0.05 level (2-tailed).


Dependent variable=(PATENTS)j,t+3
Collinearity Statistics
Tolerance VIF
GDP per capita 0.560 1.787
GDP 0.012 84.574
R&D personnel (FTE) 0.368 2.716
R&D $ 0.012 82.324
Openness 0.827 1.210
Ed share 0.877 1.140
Private R&D funding 0.572 1.749
Univ. R&D performance 0.632 1.581
Observations 252

Due to the muliticollinearity problem, the adjusted R that pervious studies take 17 countries 1 as a sample to
square of model 1 is extremely high. While this work deletes develop an NIC preferred model, yet those sample countries
variables with collinearity to make the model more precise, are developed countries; those countries have well developed
the adjusted R square of model 2 is lowered down to 50.10%. infrastructures and healthy cluster-specific environments.
Moreover, once the explanatory power of model 2 is However, this study examines 42 countries which include
dropping down to a half; some variables are turned into developed and developing countries, as Furman’s purposed
insignificant (eg. openness, private R&D funding and Univ. the theories of new-to-the-world innovation production
R&D performance) and negative (eg. Ed share). This result should apply all over the world. Therefore, the global
implicates mere local affects are insufficient to determine economic differential development attributes the empirical
NIC. Consequently this study tries to compensate for this result of some individual impacts on model 1 inconsistently
effect by simultaneously taking local affects and interactive with the prior study. Moreover, this result also implies that
affects to interpret NIC. Results are shown from model 3 to pervious studies imperfectly interpret NIC determinants on a
model 9. global level.
However, the empirical result of hypothesis 1a, 1b, and 1c Meanwhile, comparing model 2 and model 5 or model 2
do not support Furman et al. [2] study. This study suggests
The sample country by Furman’s study was list in Appendix A.

PICMET 2010 Proceedings, July 18-22, Phuket, Thailand © 2010 PICMET

and model 8, the results show a rising trend; this supports countries spread their technology into numerous lower
hypotheses 2 and 3. These results show that national innovative capacity countries, leading technology diffusion to
innovative capacity is not solely determined by local affects negatively impact NIC performance. That is to say, previous
but is also influenced by social proximity of international studies regard technological diffusion as global stratification
technology diffusion. patterns (e.g. [16, 21, 27, 49, 56, 57]). Therefore, the result of
these findings is consistent with those of previous works.
B. The effects of autocorrelation model Furthermore, the rent of embodied technology
As for the relations between the autocorrelation model transforming to innovative capacity is affected by the import
and NIC performance in each country as demonstrated by country’s absorptive capabilities [58]. Products only partially
models 3 and 6, the cohesion mechanism exhibits unexpected contain essential knowledge and techniques on
negative effects via embodied and disembodied technology manufacturing[59], and cannot transfer the technology
diffusion, this does not support hypotheses 2a and 3a. completely. Acquiring knowledge involves not simply
However, regarding the structural equivalence mechanism, purchasing or trading goods, but rather systematic and
models 4 and 7 demonstrate positive and significant purposeful knowledge-based learning and construction [60].
relationships between the interactive affects and NIC, Developed countries export numerous types of machinery
supporting hypotheses 2b and 3b. and equipment to developing countries, contributing a
This result infers that countries lean more towards positive effect to developing countries’ innovative capacity.
influencing national innovative capacity through mimicking Therefore, lower innovative capacity countries achieve
the behavior of competitors than mimicking partners. economic growth and changes in productivity efficiency
Furthermore, comparison of the contagion effects in Table 1 through the embodied technology of their more innovative
reveals that influence on national innovative capacity via partners. Developing countries do not exert a valid influence
embodied technology is greater in terms of the structural on innovative activity via the embodied technology of
equivalence mechanism than is the cohesion mechanism, developed partner countries, but such technology increases
supporting hypothesis 4. On the other hand, regarding their production efficiency [61-63].
disembodied forms, the structural equivalence mechanism The embodied technology autocorrelation model via
retains a more positive and significant influence on national structural equivalence mechanism diffusion displays positive
innovative capacity than does the cohesion mechanism, but significant influence on NIC performance. Model 4
supporting hypothesis 5. In addition, by determining represents countries that are more inclined to utilize
embodied and disembodied technology generates differential mimicking behavior with structurally equivalent competitors
knowledge and technology spillover further influencing through trading embodied technological commodities. This
innovative performance, this study assumes that NIC mechanism demonstrates that ego countries and alter
performance is mainly effected by disembodied technology countries are competitors [40]. Owing to the existence of
diffusion, rather than by embodied technology diffusion, structural equivalence, a given country can mimic the
supporting hypothesis 6. technology of a competitor country with a similar network
1) Embodied technology diffusion autocorrelation model Conversely, while trade action from competitors results in
The results of embodied technology diffusion show the more innovative outputs owing to competition, a focal
autocorrelation model rising gently. Most individual impacts country has a mimic similar reaction [10]. This result infers
are positive and even significant in terms of local affects. that embodied technology diffusion via structural equivalence
Notably, since interactive affects combine with local affects, gives negative results between competitors given the spatial
in models 3, 4 and 5, the major R&D expenditure variables in limitations of indigenous innovative performance; mimicking
the common innovation infrastructure, the cluster-specific behavior can not significantly replenish notional innovation
innovation environment and quality of linkages obviously capacity.
influence NIC performance, since these variables turn This study compares two interactive affects of the
positive and significant. This result implies that international autocorrelation model, to determine whether NIC
technology diffusion replenishes the model of national performance is more similar between countries with
innovative determinants. However, the interactive effect of structural equivalence proximity than with cohesion
model 3, embodied technology diffusion via cohesion proximity, as stated in hypothesis 4. The model shows that R
mechanism, is negative and significant, which appears square should identify effectiveness [64]. Thus, the R square
inconsistent with previous studies. Theoretically, international of model 4 is larger than that of the model 3. Furthermore, in
technology diffusion positively effects both ego and alter model 5 the structural equivalence coefficient is more
countries [24, 55]. positive and significant than the cohesion mechanism. The
The reverse effects are observed when this investigation analytical results support hypothesis 4; the structural
includes developed and developing countries, and those equivalence mechanism exerts a major interactive effect on
countries develop new-to-the-world technology differently[2]. the NIC performance. Restated, NIC performance is triggered
At the global level, several higher innovative capacity more by competitors than cohesion partners. This result is

PICMET 2010 Proceedings, July 18-22, Phuket, Thailand © 2010 PICMET

consistent with that of Koka et al. [10], namely that countries competition in the same network position, provide an ego
seeking to develop a profitable trading policy must ensure country with positive feedback regarding national innovation
their policies fit those of other related countries. performance via international technology diffusion.
This study find that countries prefer to learn from the By comparing two interactive affects of disembodied
experiences of others with a similar network position, since technology diffusion as presented in Hypothesis 5, this
such learning can positively influence national innovation investigation compares the results of model 7 and model 6.
performance; restated, countries can react to competitors who Furthermore, in model 8 the coefficient estimates of structural
are structurally equivalent in terms of embodied technology equivalence more positively and significantly than cohesion
diffusion. mechanisms do. This supports Hypothesis 5, indicating the
autocorrelation model of structural equivalence mechanism
2) Disembodied technology diffusion autocorrelation model yields more significant contagion effect than cohesion
The autocorrelation model with disembodied technology mechanisms. That is, national innovative performance is
diffusion shown in model 6, 7 and 8, which explanatory influenced more by the competitive countries’ innovative
power rise more obviously than embodied technology does. performance.
Most individual impact on local affects remain positive and Alter countries with similar network positions remain the
significant, especially the major R&D expenditure variables. main influences on national innovative capacity of ego
This result strongly infers that disembodied technology countries. However, international pure knowledge spillover
diffusion mainly interprets NIC performance. proves effective not only when technology is obtained from
However, the standardized coefficient of interactive abroad for less than the original cost of domestic inventors,
affects via the cohesion mechanism is negative and but also when a country can absorb and apply technology
significant, and this empirical result not support hypothesis from abroad. Additionally, direct learning regarding explicit
3a. But the result of autocorrelation model 6 rises upward to knowledge of foreign competitors replenishes indigenous
66.6%. This result significantly correlates international technological capability and can actively be adopted for
technology diffusion with global stratification patterns. Due innovation efficiency.
to the large differences in innovative capacity between
developing and developed countries, low innovative capacity C. Comparison for embodied and disembodied technology
countries depend upon their cohesive partner’s disembodied Empirically, embodied and disembodied diffusion are not
technology to promote their technological advances[62] easily distinguishable, but the measurement in terms of
Consequently, the strong relationship within cohesive groups empirical data can capture and differentiate either embodied
has reverse effects on innovative capacity. Restated, the effect or disembodied diffusion. Comparing the models 5 and model
of disembodied technology diffusion among countries within 8, it is demonstrated that disembodied technology diffusion
a cohesive group exerts a negative influence on innovative autocorrelation model influences NIC more significantly than
capacity. However, the essence of disembodied technology embodied technology diffusion does. Furthermore, comparing
diffusion shows that pure knowledge spillover is more model 8 results of 83.4% with model 9 with 83.7% shows a
directly effects innovation capacity. Thus this autocorrelation slightly higher result, though it is total model.
model 6 affects innovation performance more than previous This result infers that the better model is model 8; national
models. Additionally, this influence of interactive effects also innovative capacity simultaneously determined by the
shows prominently in structural equivalence mechanisms. indigenous innovation environment and influence on
In model 7, structural equivalence mechanisms, the disembodied technology diffusion. More specifically, this
standardized coefficient is positive and significant. A country result indicates a differential rigidity between two forms of
that is structurally equivalent not only has a similar network technology diffusion. Notably, embodied technology
position to a competitor but also a similar technological diffusion is more rigid to rent spillovers than disembodied
environment to acquire the knowledge of their competitors; technology diffusion is to pure knowledge spillovers.
disembodied technology via structurally equivalent Utilizing specialized and advanced intermediate products
mechanism is easier to diffuse. Since disembodied that have been invented overseas demonstrates the implicit
technology diffusion is termed an active technology spillover, usage of technological knowledge embodied in foreign
direct learning or purchase of foreign technological intermediate goods for producing final output. Furthermore,
knowledge involves explicitly using disembodied knowledge the technological knowledge embodied in trading
in the form of patent applications. While the actions of intermediates is not available to domestic inventors.
competitor countries stimulate increased patent output and Embodied technology diffusion is thus considered a passive
raise national competitiveness, an ego country in the same technology spillover that primarily influences changes in
network position performs similar and active R&D to productivity efficiency [62]. Restated, embodied technology
increase their innovation activity. When other countries diffusion is rigid to knowledge spillover, which is a relatively
remain in a position of structural equivalence with an ego weak form of international technology diffusion that
country, their conduct positively affects innovation capacity. influences national innovative performance. !
Consequently, alter countries, following the role of Disembodied technology diffusion is less rigid for

PICMET 2010 Proceedings, July 18-22, Phuket, Thailand © 2010 PICMET

knowledge spillover, and is termed active technology proximity effects differentiate national innovative capacity.
spillover. Direct acquisition of foreign technological The cohesion proximity negatively affects national
knowledge involves explicitly using disembodied knowledge innovation capacity, inferring international technology
in the forms of formulas, research papers, and patent diffusion via global stratification patterns. As a result, merely
applications [65]. Furthermore, disembodied technology utilizing the technology of a cohesion partner without
diffusion provides a cost effective channel to replenish NIC. absorbing the embodied or disembodied technological rent
Pure knowledge spillover occurs internationally if spillover will more deeply embed a country into a large
technological knowledge is obtained from foreign for less exchange system. Additionally, interactive environments in
than the original cost of domestic inventors. Direct learning structural equivalence proximity significantly influence
regarding foreign technological knowledge increases the national innovation capacity. Countries are affected more by
domestic technological stock of knowledge that can be structurally equivalent competitors than cohesion partners.
actively adopted for innovation, and that influences technical That is, countries become more inclined to take competitors
change. as a paradigm via international technology diffusion based on
the environment in which they are developing.
VI. CONCLUSIONS Based on the empirical findings, national innovative
capacity is simultaneously determined by domestic R&D
This section will quickly review the main contributions of resource allocation and influenced by international
this study. It will have summarized the limitation of the technology diffusion. The findings of this study imply that
research method proposed and results obtained. It will there are two points for countries interested in innovative
conclude by suggesting new research directions. capacity gain. First, tuning of the endogenous and exogenous
As the importance of countries upon the international factors can be an important strategic principle for
innovative competition increases, so does the need to identify technological growth. Restated, while a country can allocate
major determiners and influence mechanisms on national domestic R&D resource for technology development, policy
innovation performance. Consequently, this work takes the makers should refer more to their global network position
perspective of a network autocorrelation model to explore the than to network cohesion to deploy their international
endogenous determiners and exogenous influence on national cooperation. Therefore, indigenous technological capability
innovative capacity. corresponds with foreign technology acquisition to increase
First, this study reconsiders the Furman et al. [2] propose innovation. Second, national innovative capability is more
the determinants of national innovative capacity, because the significantly affected by foreign disembodied technology.
empirical result implies that merely local affects used to Consequently, acquiring competitor countries’ disembodied
determine national innovative capacity results in imperfect technology is more effective to influence on innovative
results. More specifically, previous studies pay less attention capability gain.
to exogenous technological development infulence on Despite its contributions, this study has certain limitations,
national innovative capacity, without adequately dealing with and these limitations should be acknowledged to identify
the differing effects of exogenous technology. Through an future research directions. This work provides some
autocorrelation model that simultaneously considers local suggested directions for future research. Suggestions include
affects and interactive affects, this study reconstructs the the following: this work explores the network autocorrelation
model of determents and influence on national innovative model, simultaneously considering local affects and social
capacity, and examines the important differences between the contagion effects in a global context; it does not individually
alternate channels of international technology diffusion and examine the actions of focal countries at the block level (e.g.
their differential effects on innovative performance. core, semi-periphery and periphery). Global stratification
Second, the important differences between the alternate patterns can be made more specific if researchers focus on
channels of international technology diffusion on national the interactions between certain countries and others. Finally,
innovative capacity show that disembodied technology this study focuses on social contagion effects to the exclusion
diffusion more effectively replenishes the indigenous of other social network analysis. A useful direction for future
technology environments than embodied technology does. works would be to apply more indicators and conceptions of
This empirical result infers that embodied technology is rigid social network analysis to analyze the data.
to knowledge spillover and more strongly influences
productivity changes than innovative performance. ACKNOWLEDGMENTS
Comparatively speaking, disembodied technology is less
rigid to knowledge spillover with regards to influence on The authors would like to thank Les Davy, National Chi
national innovation performance, and moreover affects Nan University Department of computer Science and
technical change. Therefore, this channel differential Information engineering, for his editorial assistance. Also,
provides policy alternatives in national science and this research was supported by a grant from the National
technology development. Science Council of Taiwan for financially supporting this
Third, in a global network context, differential interactive research under Contract No. 97-2410-H-260-011-MY3. This

PICMET 2010 Proceedings, July 18-22, Phuket, Thailand © 2010 PICMET

support is gratefully acknowledged. [28] Maskus, K. E., Encouraging International Technology Transfer, Geneva,
Switzerland, 2004.
[29] Helleiner, G. G., “The Role of Multinational Corporation in Less
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Argentina Australia* Austria* Belgium Brazil Canada*
Chile China Colombia Denmark* Finland* France*
Germany* Greece Hong Kong Hungary Iceland India
Indonesia Ireland Italy* Japan* Malaysia Mexico
Netherlands* New Zealand* Norway* Philippines Poland Portugal
Russia Singapore South Africa South Korea Spain* Sweden*
Switzerland* Taiwan Thailand Turkey United Kingdom* United States*
* Country is the sample by Furman et al. (2002) study.


Variable Full variable name Definition Source
Innovative output
Patents j,t+3 International patents granted in all types of patents granted by USPTO in USPTO patent database
year t+3 country j in year (t+3)
Quality of the common innovation infrastructure
GDP per capita j,t GDP Per Capita Gross Domestic Product per capita, World Economic Indicators (WDI)
constant price in 2000 US$
GDP j,t GDP Gross Domestic Product, constant price in World Economic Indicators (WDI)
2000 US$
R&D personnel (FTE) j,t Aggregate R&D Personnel Full time equivalent scientists and UNESCO Institute for Statistics S&T
Employed engineers devoted in R&D in all sectors database OECD Science & Technology
R&D $ j,t Aggregate R&D Expenditure Total R&D expenditures in year 2000 IMD World Competitiveness Report
millions of US$
Openness j,t Openness to international trade Exports plus Imports divided by GDP is Penn World Tables
and investment the total trade as a percentage of GDP
Ed share j,t Share of GDP spent on secondary Public spending on secondary and tertiary World Economic Indicators (WDI)
and tertiary education education divided by GDP
Quality of the cluster-specific innovation environment
Private R&D funding j,t Percentage of R&D funded by R&D expenditures funded by industry UNESCO Institute for Statistics S&T
private industry divided by total R&D expenditures database OECD Science & Technology
Quality of linkages
Univ. R&D Percentage of R&D performed by R&D expenditures performed by UNESCO Institute for Statistics S&T
performance j,t universities universities divided by total R&D database OECD Science & Technology
expenditures indicatorsġ
Contagion effects
Embodied Embodied spillover via Cohesion Interaction within cohesive group via Global Trade Information Services, Inc.
via Cohesion mechanism trade flows (GTI)
Disembodied via Disembodied spillover via Interaction within cohesive group via NBER Patent Citations Database
Cohesion Cohesion mechanism patent citations
Embodied via Structural Embodied spillover via structural Relation in Structural equivalence via Global Trade Information Services, Inc.
equivalence equivalence mechanism trade flows (GTI)
Disembodied via Disembodied spillover via Relation in Structural equivalence via NBER Patent Citations Database
Structural equivalence structural equivalence mechanism patent citations





Dundar F. Kocaoglu
Timothy R. Anderson
Tugrul U. Daim

Antonie Jetter
Charles M. Weber