Technology Policy and Knowledge-based Growth in Small Countries
The rapid diffusion of technology is a prerequisite for small countries to catch-up or remain at the fore-front of the technology race. The critical issue is how innovation policies can be framed so that they encourage the diffusion of technology and consequently upgrade the domestic technology structure of the host country. The range of available policy options to a small country as host to foreign R&D intensive trans-national companies (TNC) is defined by the way the country?s productive capacities can link to the TNCs global production structure. These abilities and the degree and quality of the integration can be improved with the help of foreign direct investment (FDI) and science, technology and innovation (STI) policies. While financial incentives aimed at attracting R&D intensive FDI may be necessary for a small country, such schemes need to be supplemented with policies that stimulate learning and investments in domestic firms. R&D intensive TNCs do not necessarily upgrade the technological knowledge base since high-tech industries also incorporate low-tech phases in their production processes. It is particularly important to strengthen the technological capacities of local firms to learn from foreign TNCs and to create knowledge spillovers.
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