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Flows of ideas

Link to economic growth

Technological change is at the core of all theories of economic growth. Knowledge allows the possibility of producing increasing output with the same inputs: increasing returns to scale.

Ideas can be thought of as embodied or disembodied. Embodied ideas can be transferred in the form of trade, capital and people flows. Disembodied ideas require a lower level of interaction to be transferred; that is, they do not require trade, capital or more permanent movement of people. These ‘pure’ ideas can be acquired through research-related networks, including research exchanges, student movements, joint research ventures and technology agreements, or firm-related networks, including business and professional networks, demonstration firms, government sponsorship of collaboration and business exchanges.

Proportion of OECD R&D that is performed outside New Zealand
Source: OECD

Disembodied knowledge is still likely to require some interaction. The partially codified nature of ideas suggests that some interaction is required in order to effect its full transfer.[89] Electronic and face-to-face contact both facilitate the transfer of information.

Knowledge created abroad is an important source of ideas. Greater openness to countries with large stocks of knowledge helps generate productivity growth in the home country.[90] For New Zealand, this is particularly important given that almost all new ideas will be generated overseas.[91]

R&D is an important precursor for absorbing foreign knowledge. As well as being an important driver of knowledge creation, R&D helps to facilitate knowledge absorption: carrying out R&D within a firm (or within a country) leads to greater awareness and understanding of external knowledge, and also increases the capability to apply this knowledge.[92]

Distance is a barrier to knowledge transfer. Technology diffusion appears to be greater within countries than between countries.[93] One study suggests the effect of distance is so strong that Australia would benefit very little from technology created in Western Europe and America.[94] This effect occurs because knowledge is usually not fully codified: it requires some form of interaction in order to be fully diffused. To the extent that distance acts as a barrier to trade, capital and people flows, it will reduce New Zealand's ability to access the knowledge embodied in these flows. However, the barrier may be less observable: if research and firm related networks are more difficult to set up and maintain due to New Zealand's relative geographical isolation, then disembodied knowledge flows may be inhibited.

Imports and FDI are important sources of knowledge, as too are migrants although the evidence is less clear. As discussed earlier in this paper, imports and FDI are important channels for accessing foreign knowledge, whereas the evidence is much weaker for the existence of export and ODI knowledge spillovers. It also seems likely that migration has the potential to introduce new ideas and working practices and build linkages with other countries, but the evidence to date is limited.


  • [89]Gaspar and Glaeser (1998) argue that electronic and face-to-face contacts may be complements. As electronic transfer of information increases, the demand for face-to-face contact will also increase to support the transfer of information.
  • [90]Coe and Helpman (1995)
  • [91]For example, Hall and Scobie (2006) found that “foreign knowledge is consistently an important factor in explaining the growth of productivity”, though “having a domestic capability that can receive and process the spill-ins from foreign knowledge is vital to capturing the benefits”.
  • [92]Griffith et al (2004) describes this as the ‘two faces of R&D’. Blakeley et al (2005) provide a general summary of the literature on the economics of knowledge.
  • [93]See, for example, Eaton and Kortum (1999), Jaffe et al (1992).
  • [94]Keller (2002)
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