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Lecture 7: sectoral characteristics
of technological change
The role of technological change - three levels of analysis
Economists who do examine science and technology use the same levels of
analysis that are employed for analysing other economic behaviour
Macro – How does the entire market system function? Does it have a shape or
pattern that is difficult or impossible to discern by examining its components?
Meso – Markets and industries are the meso level of analysis. Many economic
outcomes are determined at this level.
Micro – The company or other organisation (e.g. non-profit or government
agency) as well as the individual is the micro level of analysis. This is where
decisions are made including the decision to invest in innovation.
Today, we will deal with the other side of a basic
dichotomy in Innovation Dynamics thinking, i.e.
our review is focusing on production-biased views
Research on sectoral technological
Why, then, the PLC model and the concept of the dominant design are
• i) Because people started raising questions related to the transition
from the meso to the macro-level of analysis, i.e.
– What is the economic value of diversity of firm level
– What is the economic impact of different sets of industrial
– What is the importance, at the aggregate level, of major,
technology driven trends.
• ii) Practical demand for well informed sectoral studies
• iii) Critical assessment of the Porter model.
Problems with the Porter model
• Firm specific factors largely neglected in the Porter
industry analysis perspective,
• Only focus on product market imperfections,
• All returns treated as profits from market power, and
• The nature of entry barriers is not properly
understood. [Exclusive focus on prices -Forms of
competition most critical for transformation and
sustainable growth over the long term are driven by
innovation, imitation and appropriation]
Innovation driven sectors are, to a large extent oligopolies. Thus, in
order to deal with intra- and inter-sectoral diversity, we have to move
beyond the analysis of basic market structures
SBI: Science Based Industries
Lets take an example: the semiconductor
industry. Recent research suggests that we
have a clear causality trend there from From
technological trends to market structures.
• Product standards and learning by doing lead to market
concentration and persistence of leadership in the
• A large part of the PC industry is based on proprietary Intel-
• The innovative leader [Intel] adopts a first-mover strategy that
aims at being first when prices are still high to recover R&D
• This is translated into initially high and then decreasing world
market shares for Intel for every new generation of products.
• Competitors enter later, they are less innovative and they
focus on volume production and marketing.
• Their entry causes prices to fall and reduced profit margins
are compensated by market expansion.
• As prices fall behind a certain level, Intel moves up to the
next generation. [Gruber, 1999).
Similar insights from the Pharmaceutical industry :
exploration and exploitation
Cycles of discovery:
• a combination of
– [use of available
assets needed to
survive in the short
– [the development of
novel capabilities for
the long run]
Pharmaceutical industry: a well
documented case of the importance of
• Recent studies on the
suggest that apart from
firm-specific and country-
fundamental changes are
taking place at the
The intensity of R&D activity, increases the number of new innovators. Shares
of top 5/10 decline.
A taxonomy for firm trajectories (Pavitt, 1984, 2000)
Supplier- Scale- Information- Science- Specialized
dominated intensive intensive based suppliers
Typical core - Agriculture - Bulk - Finance - Electronics - Machinery
sectors services materials - Retailing - Chemicals - Instruments
- Traditional - Publishing - Software
Manufacture - Civil - Travel
Main sources - Suppliers - Production - Software and - R&D - Design
of technology engineering systems
- Production - Basic - Advanced
learning research users
learning - Specialized
Main tasks of - Use - Incremental - Design and - Exploit basic - Monitor
technology technology integration of operation of advanced user
from changes in complex - Development
elsewhere to complex information of related - Integrate
strengthen processing products new
other - Diffusion of technology
best design - Development complementar
advantages and production of related y assets
practice products - Redraw
Sectoral technological trajectories: determinants, directions and measured characteristics
Category of Typical core Determinants of technological trajectories
Technological Measured characteristics
firm sectors trajectories
Sources of Type of userMeans of Source of Relative Relative size Intensity and
process appropriation process balance of innovating direction of
technology technologybetween firms technological
product and diversification
1 2 3 4 5 6 7 8 9 10
Supplier Agriculture Suppliers Price Non-technical Cost-cutting Suppliers Process Small Low vertical
dominated Housing Research andsensitive (e.g.
Private extension trademarks,
services services marketing
Traditional Large users advertising
Scale Bulk Production Price Process Cost-cutting In-house Process Large High vertical
intensive intensive materials engineering sensitive secrecy and (product
(steel,glass) supplier: know-how design)
Assembly R&D Technical
durables and Patents
Specialised Machinery: Design and PerformanceDesign know- Product In-house Product Small Low
suppliers instruments development sensitive how design Customers concentric
Users Knowledge of
Science-based Electronics/ R&D Mixed R&D know- Mixed In-house Mixed Large Low vertical
electrical Public how;patents Suppliers High
Chemicals science Process concentric
PE* secrecy and
* Production Engineering
Mapping Sectoral Regimes and Industrial
Science based Fundamental Complex systems Product Continuous
processes engineering processes
Size distribution High presence of: Low presence of: High presence of: Low presence of: High presence of:
- self-employment - self-employment - self-employment - self-employment - self-employment
Low presence of: - entrepreneur. firms Low presence of: - large firms
- small firms High presence of: - small firms High presence of:
- medium firms - entrepreneur. firms
- large firms - small firms
Average size Medium High High Low Medium
Market High Medium High Low Low
Exit rate High Low High
Entry (% self- High Low Low Low
Exit (% self- High Low Low
Survival rate Low High High
Stability of Low High High Low Low
GPT's characterized by:
1. Pervasiveness, i.e. used as inputs by a
wide range of downstream sectors
2. Technological dynamism
3. Innovational complementarities: the
productivity of innovative activities in
user sectors increases as a
consequence of improvements in the
How does knowledge flow between
• embodied in intermediate products
• via patents and licences
• embodied in capital goods
• via consultancy services
• via joint ventures
• via technological collaboration (informal or formal)
• via complex non-R&D inputs (such as design)
• via human capital flows
• via extramural R&D
• via imitation
As a GPT advances it spreads throughout
the economy, fostering innovation in an
ever-expanding array of application
sectors, and bringing about generalized
GPTs link micro, meso and macro: innovation
in “single” tech has macro consequences!
Inter-industry spillovers: General
Technological convergence at the sectoral level: Different sectors
come to share similar technological bases
THE ‘CRITICAL TECHNOLOGIES’ GROWTH ARGUMENT
• 1. Growth is based on specific new industries characterised by
radical technological change.
• 2. These radical technologies tend to be 'clustered' together.
• 3. These industries displace existing activities, creating investment
opportunities and 'virtuous circles' of growth; as opportunities
decline, growth rates slow.
• 4. ICT is a key activity of this type at the present time. It is rapidly
growing as a major employer, with major employment growth
prospects 'knowledge intensive‘ a driver of growth in other sectors
Problems with waves and
• Do they actually exist? (Not much statistical evidence…)
• Confusion between innovation and diffusion
• Basic problems of chronology
• Size of the new sectors (most of them were and are
• Measurement of inter-industry impact
• Pervasiveness of innovation
• Persistence of some key technologies
• Arbitrary selection of the critical technologies
• Exceptions: countries that develop without significant
presence in the critical technologies/industries
Empirical validation of the impact of Industrial
structure on aggregate growth [Peneder]
• Sectoral differences in income elasticity of
• The structural bonus hypothesis [reallocation of
labour in favour of industries with higher levels
• The structural burden hypothesis [increasing
labour shares in stagnant industries]
• Differential growth at the industry level
• Industries differ in their generation of external
Sector specific competencies
• Are technological competencies sector-specific
or the trend is towards the convergence of
technological competencies across sectors?
• It possible to define some core technological
areas for industrial sectors. These differences
will be maintained over time.
• Thus, we have a path-dependence view.
• Most spillovers between firms would arise within
• Corporate technological diversification takes place.
• That comes in line with broader long-waves in cross-
industry technological paradigms.
• Take for example the car industry [Initially, car
production relied on mechanical technologies (engine,
gearing) and chemical technologies (fuel consumption,
metals); Present day auto industry combines all that with
digital and electronic systems (fuel control, braking
• Since the long wave approach suggests that in the long
run all industries will be influenced by the new paradigm,
we can label this process as technological
convergence between industries.
Technology driven systemic failures [K. Smith]
Failures in infrastructure provision and investment. When there is problematic
under-investment in the two types of infrastructure with which firms interact,
namely, physical infrastructure (like communications and transport), and
science-technology infrastructure (like universities, regulatory agencies,
publicly supported laboratories).
Public action should be directed towards setting up incentives for and controls
on private provision, subsidies for private provision or direct public provision.
Transition failures. When firms are highly competent within their own
technological area but not in other related areas. Public action generally aims
to solve this problem implicitly, but public action should be more explicit and
devise special measures for this type of failure.
Lock-in failures. When firms are not able to switch away from their existing
technologies and get 'locked-in' to a particular technological paradigm or
The rationale for public action is to generate incentives, develop technological
alternatives and nurture emerging technological systems in order to make it
easier for firms to move away from lock-ins.
Institutional failures. When the institutional and regulatory context is having an
unexpected and negative impact on innovation in the system.
Public action here should concentrate on monitoring and assessing regulatory
• Increase variety?
• Extent of support of scientific research
• Introduce horizontal or selective policies?
• Invest in complementarities?
• The scale of resources needed for technological
• The size of firms
• New sectors/firms or restructuring
• Real Business Cycles?
• Dosi-for definitions
• Rosenberg, Tunzelmann, Lee (will become available
• A bridge to lecture 6: Carlsson
• Peneder: An economist’s perspective on meso to
• Background reading: sectoral profiles