Public sector research - shaping factors - economic specialisation



What does economic specialisation refer to?


An economy’s specialisation can refer to several aspects of its economic activities. At the broadest level, it describes the relative importance of the three general types of activities within an economy, namely i) agriculture and, more generally, natural-resource-based activities, ii) manufacturing and iii) services. At a finer level of detail, industrial classification schemas, such as the International Standard Industrial Classification (ISIC) and different national industrial classifications, provide frameworks that allow classes of activities to be identified with more or less precision. Measures of economic specialisation will generally be based on industry evidence, though indicators of export specialisation can be useful to inform the degree of diversification in trade. Measures of revealed comparative advantage, such as the Balassa index, provide an indication of relative export performance. 


Beyond these simple activity-based definitions, the OECD has developed a classification framework that distinguishes between high-tech, medium-high-tech, medium-low-tech and low-tech industrial activities. The classification is based upon the R&D intensity of industrial sectors, i.e. the ratio of R&D expenditure to the turnover of the sector. There are four categories, as follows:

  • High-tech industries - R&D / Turnover > 5%
  • Medium high-tech industries - R&D / Turnover < 5% but > 3%
  • Medium low-tech industries - R&D / Turnover < 3% but > 0.9%
  • Low-tech industries - R&D / Turnover < 0.9%

While the classification has been widely adopted, it has several limitations as a measure of innovativeness. First, R&D intensity does not equate to innovation. Much firm innovation – even of the technological variety – does not involve the performance of R&D. Second, the classification cannot account for inter-industrial flows of embodied and disembodied technology and the associated knowledge spillovers. This means that some industries are classified as low-tech despite being advanced users of technology and knowledge generated elsewhere. There are several alternative classifications used in the academic literature that can accommodate such limitations somewhat.


The impact of economic specialisation on innovation is to some extent subject to debate but depends on whether current and, most of all, future returns to certain economic activities are higher than returns to other activities. If all economic activities have the same returns, then economic specialisation would not matter for growth prospects. Only the types of innovation would differ across countries (such as, for example, patents being particularly relevant for economies with a strong base in pharmaceuticals). Nevertheless, debates on the potential relevance of engaging in certain activities (such as biotechnology) rather than others (such as exploiting natural resources) are frequent. In particular, it is widely believed that the relative importance of primary industries in an economy has potentially detrimental effects for innovation and for future sustainable growth.




How is economic specialisation relevant to the contributions of public sector research activities to innovation performance?


If economies are specialised in high-tech sectors, then there is likelihood that inter-sectoral mobilityR&D collaboration, the scientific record, and knowledge markets will be important channels for public sector research to contribute to innovation performance. In more low-tech economies, technology services and extension type activities might be the most important channel, with fewer contributions from science-based public sector research as other types of innovation in marketing or organisational aspects are more relevant for these sectors. However, it is important to point out that low-tech sectors might benefit from high-tech innovations as efficiency-improving inputs; an example is the use of sophisticated IT tools in the financial services sector. It is, therefore, not necessarily the case that “low-tech” economic specialisation will not benefit from any high-tech innovations by public research institutions. A more general conclusion on the question is rather that the economic specialisation of an economy might matter for the type of public sector research that will be most conducive for fostering commercial innovations. In other words, public sector research in scientific disciplines of industrial interest is likely to provide more opportunities for commercialisation than research in other disciplines where economic activities are weaker.


How does economic specialisation shape the interests, activities and resources of the relevant actors?


The primary actors affected are firms, which can display very different innovation behaviours depending on the sectors in which they operate. Thus, firms differ in their incentives for engaging in knowledge production processes and in using the outputs of public sector research. For example, network service providers and/or owners of natural resources often benefit from significant rents. These rents mean that such firms are typically much less interested in pursuing opportunities to innovate and this has obvious consequences for the scale and scope of interactions with research universities and PRIs. By contrast, firms that are more high-tech are rather dependent on interactions with public sector research.


What policies are relevant to economic specialisation and its shaping of the contributions of public sector research to innovation performance?


Where high-tech firms prosper, it is very likely that strong interactions already exist with public sector research. Furthermore, public policy is likely to have been historically supportive through a mix of policy instruments. Where governments seek to reorient or diversify economic specialisation, they are likely to act through a mix of policy domains, including public sector research.  Intervention could see the use of policy instruments such as support for R&D infrastructurestechnology platformscluster initiativescentres of excellence and discretionary organisational funding to align and improve the contributions of public sector research to chosen industrial sectors.


Using appropriate measurements of innovation – to reflect different economic specialisations – is important for policy intervention. It is well known, for instance, that patenting is not a good measure of innovation activity for all sectors. Thus, different types of specialisation might require different measures before the success and/or failure of innovation support policies can be determined. For instance, measures of marketing and organisational innovation as well as trademark indicators can be more useful than patenting indicators to assess innovation performance in services sectors.

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