The document discusses innovation and regional economic development. It covers several topics: 1. Innovation is key to improving productivity and economic growth. It creates competitive advantage by reducing costs and introducing new products. 2. Successful innovation depends on regional factors like assets, networks, and economic culture that make up the regional innovation environment. Assets include skilled labor, infrastructure, research programs, and more. 3. Indigenous innovative activities like R&D spending help explain differences in regional growth. Knowledge-rich regions have continuous advantages over areas relying on external technology.

1. INNOVASI DAN PERTUMBUHAN
REGIONAL
PROGRAM PASCA SARJANA ILMU EKONOMI
UNIVERSITAS INDONESIA
14 Desember 2012

2. Innovation Base Regional Economic Development Model

3. Regional Innovation Environment Inputs and Output

4. Innovation and Productivity Growth
• Improving a region’s standard of living requires steady
growth in productivity.
• For advanced industrial economies, productivity growth
increasingly depends on the capacity for innovation.
Innovation creates competitive advantage in two ways:
• by reducing bottom line costs — applying technology
in ways that lower operating costs in order to
compete against lower-wage countries
• by growing top line revenues through the
introduction of new-to-the-world or differentiated
products and services that command a price
premium in the market

5. Inputs to Innovation Capacity
• Successful innovation, and the increased productivity and
prosperity that results, is the output of the dynamic
interplay of a variety of regional factors.
• Every region has a different set of assets, networks,
• and an underlying economic culture that determines its
success in supporting innovative firms and people
• The interplay between these innovation inputs creates
the regional innovation environment that impacts the
ultimate prosperity of the region

6. Assets in Innovation Context
• Assets in the innovation-based economic development
model include the human, intellectual, financial, physical,
and institutional capital resident in a region.
• The asset base incorporates many common criteria for
corporate location decisions, such as: availability of
skilled labor, the quality of transportation infrastructure,
cost of doing business, and proximity to customers.
Assets also include other factors that are not as widely
discussed but are important to innovation, such as:
research and development investment, technology
transfer, and entrepreneurship support programs.

7. Innovation and Regional Growth
• How can differential innovative efforts (in the form of R&D
expenditure) help explain the differential regional growth
performance?
• What geographical factors influence this relationship?
• Does the process of innovation in peripheral areas exhibit
specific features that differentiate it from the process of
innovation in other areas?
• What is the role of indigenous socio-economic conditions in
the process of absorbing externally produced knowledge and
the translation of endogenous innovative efforts into economic
growth?
• Are the EU’s regional development policies – one of the most
important large scale regional policy experiences – likely to
produce an improvement in the capability of peripheral and
disadvantaged areas such as to satisfy their individual needs?

8. Indigenous Innovative Activities
• Regional growth differentials on the basis of differentiated
innovative activities  mechanisms through which knowledge
is created and translated into growth.
• Technological progress in the traditional neoclassical
perspective, as independent of capital accumulation,
economies of scale, human capital  truly public good, its
creation is unrelated to the rest of the economic system. Its
effect on growth rates is regarded as a “residual” matter (the
views of Solow 1957; Borts and Stein 1964; Richardson 1973
• With technological knowledge, decreasing returns to capital in
the long run, automatic convergence in regional growth rates
without any role being assigned to indigenous innovative
activities.

9. Permanent Disparities
• Thus the inclusion of innovation efforts into the determinants
of growth allows this theoretical perspective to account for
permanent regional disparities in the rates of growth 
regions that are well endowed in terms of knowledge and
human capital, thanks to their accumulated pool of
knowledge, will have a “continuous advantage over less well-
endowed regions which rely on exogenously embodied
technology (in the shape of new capital equipment purchased
from other regions) because they are not capable of producing
their own” (Armstrong and Taylor 2000, p. 87).
• The potential for the concentration of economic activity and
for divergence becomes more evident when issues such as the
minimum thresholds of R&D and of appropriability of
technology – highlighted by the neo-Schumpeterian strand of
the endogenous growth approach – are considered.
• For R&D investment to be effective a minimum threshold of
investment is necessary, making the relationship between
investment in R&D and economic growth not linear

10. INNOVASI DAN PERTUMBUHAN REGIONAL
Sumber: R Capello et al (2011)

11. Conceptual map of existing literature on
innovation and growth

13. INNOVASI DAN PERTUMBUHAN REGIONAL
Sumber: R Capello et al (2011)

14. REGIONAL INNOVATION SYSTEM
Sumber: McCann (2007)

15. Types of knowledge exchange in the innovation process
Sumber: McCann (2007)

16. Regional innovation systems: typology and evolution
Sumber: McCann (2007), after Cooke (2004)

17. What is entrepreneurship?
• What is the exact nature of entrepreneurship and its
role in economic theory?
• How much have theory and research advanced since
Schumpeter’s theory of long waves?
• What are the links of entrepreneurship to economic
growth?
• Can entrepreneurship be considered as the interface
between small business (the micro level) and
economic growth (the macro level)?
• Given that entrepreneurship plays a role in economic
development, how can it be fostered?

18. Characteristic of an Entrepreneur
• Risk seeking: the Cantillon or Knightian entrepreneur
willing to take the risk associated with uncertainty
• Innovativeness: the Schumpeterian entrepreneur
accelerating the generation, dissemination and
application of innovative ideas
• Opportunity seeking: the Kiznerian entrepreneur
perceiving and seizing new profit opportunities (OECD
1998; Carree and Thurik 2002)

19. ECONOMIC ANALYSIS OF WATER SUPPLY

20. Innovations Leading to a Decrease in the Average Cost of Production
Sumber: McDaniel (2002)

21. Evolutionary and Revolutionary Innovations
Sumber: McDaniel (2002)

22. Comparing the Impact of Innovations in Short-Run and Long-Run Reductions
Sumber: McDaniel (2002)

23. Characteristics of an Entrepreneur
• Self-esteem/self-confidence
• Determination to finish a task and succeed
• Persistence/diligence to keep trying
• Willingness and ability to take calculated risks
• Optimism about success of efforts
• Creativity: Ability to see a need and end result of efforts
• Focus: Orientation to continuously pursue a goal
• Foresight/insight: Ability to see the future as it might be
• Unwillingness to accept failure and the ability to learn
from mistakes
• Responsibility/ability to accept control and willingness to
accept results

24. Relationship Between Short-Run Average Costs
and Long-Run Average Costs

25. Examples of Technologies and Their Resulting in Better
and Cheaper Products

26. The Product Curve Using Labor as the Variable Input

27. Average and Marginal Product Curves

28. Five Types of Industrial District
● Marshallian – small firms, localized investment links, preferred
suppliers, labour market loyalty, flexible work regime
● Marshallian (Italianate variant) – with added cooperation,
design intensive work and collective institutions plus local
government support
● hub and spoke – Hollywood-like oligopolies plus suppliers, high
intra-district trade, low cooperation among oligopolies
● satellite platform – externally owned oligopolies, low
cooperation, low social capital, strong government support
● state anchored – government installations, scale economies,
low local investment, strong external linkages
Sumber: Markusen (1996)

29. Related variety platform: forestry diversification
Source: After Watkins and Agapitova (2004)

30. Broadcasting model diffusion curve
Source: Morone and Taylor (2010)
Rate of diff usion at time t