Technological infrastructure and international competitiveness

The paper is probably the first written paper using the concept of 'the national innovation system' and it analyses how technological infrastructure differs between countries and how such differences are reflected in international competitiveness. It makes a critical review of new (in the 1980s) developments in the theory of international trade and confronts them with recent empirical results. It shows how competitiveness cannot be explained by wage rates-prices-currency rates. Technological leadership gives absolute rather than comparative advantage and technological leadership will reflect institutions supporting coupling, creating, clustering comprehending and coping in connection with technology. The analysis is rooted in historical context through references to Friedrich List and his criticism of Adam Smith and laissez-faire. Special emphasis is put on List's concept of mental capital. Finally, the analytical arguments are illustrated by the catching-up and forging ahead of first Germany and later Japan. The paper concludes that disequilibria in international trade will be persistent and that for laggard economy the free trade doctrine may be unduly restrictive. Another conclusion is that public investment in technological infrastructure and intellectual capital is crucial for successful economic development. It is pointed out that there is a need to couple education, science, trade and industry policy in order to build competitiveness. Copyright 2004, Oxford University Press.