5  Applying the country selection criteria

5.1  Speeding up technology diffusion by deepening R&D links with the global leaders

Stronger R&D links are central to increasing global connectedness. Investment in R&D affects a country’s productivity performance. The new theories of growth focus on this link and have identified channels through which a country’s productivity performance is affected by the R&D efforts of its trading partners. However, only a few countries are the global technological leaders. Ninety-five per cent of business enterprise R&D in OECD statistics is conducted in the G7 countries (OECD 2003). They are the first to benefit from most innovations. Innovations spread only gradually to others inside a leading edge country and abroad. The USA is the only OECD country that does not import the majority of its new technology from abroad (Keller 2002a, 2002b, Eaton and Kortum 1999).

By deepening our links with leading edge countries with large stocks of knowledge from their cumulative R&D efforts, New Zealand may lift its productivity performance. New Zealand, of course, has areas of R&D excellence such as in the pastoral sector. In areas such as biotechnology, environmental science and certain kinds of information and computer technology, New Zealand has carved out a respected R&D niche for itself. However, in general, New Zealand is a technological follower. In industries marked by progressive innovation, where continually newer varieties and qualities are appearing, the advantage of large countries such as the USA and other G7 members with strong R&D infrastructures are often too strong for smaller economies to overcome. It is cheaper to copy, imitate or reverse engineer the successes of the global technological leaders.

At a high level of generality, the internationalisation of technology means that inventions, the people generating these inventions, and the ownership of these inventions cross national borders more frequently. Scientists and engineers born in one country graduate and get a job in another country, while possibly returning back to their home country after a while. Firms located in different countries set up alliances for R&D. Companies can buy patents, licences or know-how from foreign firms, they can observe competition (eg,reverse engineering), they can hire foreign scientists and engineers, they can interact with foreign competitors who invested in their country, read the scientific and technological literature, or have direct contacts with foreign engineers and scientists at conferences.

Deciding which countries are to be selected for deeper R&D relationships will depend on the extent to which those countries are global R&D leaders. Less than 0.2% of the world’s R&D expenditure occurs in New Zealand (MoRST 2002).

A common consideration when discussing international technology diffusion and direct learning about new technologies invented abroad is the impact of distance. The evidence on the extent to which technological progress is local and its rate of geographic diffusion is from a relatively young literature and contradictory results are often reported.

Keller (2002a, 2002b) initially suggested that the extent of technology diffusion fades rapidly with distance. Keller found that the geographic half life of spillovers, the distance at which half of the spillovers from foreign R&D have disappeared, is only 1,200 km. However, if true, it implies that New Zealand (and Australia), with their remote locations relative to the G7, benefit little from international technology diffusion. This is implausible. A considerable proportion of the cumulative stock of knowledge exists in the form of product blueprints and these blueprints should be readily available to New Zealanders.

Keller (2002a, 2002b) found after further analysis that trade patterns appear to account for the majority of all differences in bilateral technology spillovers, whereas foreign direct investment and communication flow differences (language differences) account for about 15% each. Keller found that these three channels account for almost the entire localisation effect that was otherwise attributed to geographic distance. Keller (2002a, 2002b) found that distance is a proxy for trade patterns, FDI and a shared language. When these variables are added, distance drops out from Keller’s econometric analysis.

The data on technology connectedness suggests that New Zealand’s R&D sector has well developed channels for active diffusion from the global technological frontier. OECD (2003) data for 1997-1999 from the European Patent Office (EPO) suggests that international co-inventions and cross-border ownership of New Zealand patent applications was in the middle of the OECD field and is similar to Australia, Canada and the Nordic countries (see table 1). Another indicator of international R&D collaboration is the share of patents with inventors with residences in two or more countries (as in table 2). New Zealand’s rate of co-inventions is close to the middle of the OECD field. The number of New Zealand patent applications per million of the population with the EPO is about the same as for Australia (see table 2). The number of New Zealand applications at the EPO has tripled since 1991. Australia doubled. There was a 68% increase in patent applications from OECD countries at the EPO from 1991 to 1999 (OECD 2003).

Using 1993-95 patent applications data at the EPO and at the U.S. Patent Office, Guellecand van Pottelsberghe de la Potterie (2001) found that the degree of technological internationalisation is higher for the small OECD countries and that two countries are more likely to collaborate if they are close to each other, if they have similar technological specialisations, and if they shared a common language. Researchers in larger countries find it easier to enter partnerships with colleagues in their own country. However, researchers from smaller countries will have fewer local colleagues in their field and must look abroad for collaboration (Guellecand van Pottelsberghe de la Potterie 2001).

Data collected by the Ministry for Research, Science and Technology (MoRST 2002) indicate that the USA, Australia and the UK are New Zealand’s principal scientific collaborators. At any one time, there are about one thousand New Zealand/U.S. collaborative research projects that are active, which is about double the number with any other country. About one third of New Zealand scientists collaborate with UK counterparts. The MoRST (2002) data also shows significant New Zealand collaboration with German (14%) and to a lesser extent with French scientists (7%).

Table 1 – Percentage of patents applications with the European Patent Office with cross-border ownership, 1997-1999

Strategies that seek to increase R&D collaboration with countries at the global technological frontier (the G7) are likely to have a positive impact on New Zealand’s economic performance as most industrial innovations originate in those countries. New Zealand should deepen its R&D links with the global technological leaders that are geographically close, that already have extensive trade and FDI links with us, that have co-investment potential, that are receptive to collaborations, that share a common language, and that share technology specialisations. These criteria are consistent with the research of Keller (2002a, 2002b) on the geography of technology diffusion and of Guellecand van Pottelsberghe de la Potterie (2001) on cross-border R&D collaborations.