ABSTRACT

Technology development depends importantly upon the institutions that support industrial firms as they invest in building their technological capabilities. Institutional support is critical because private investments in technology face significant market failures, and unfold cumulatively under conditions of imperfect information and inherent unpredictability. This is true even for developing countries seeking to industrialise using imported technology, since deeper levels of innovative capability can only be acquired through deliberate and costly local investments in technological learning. Institutions shape the incentives, both rewards and risks, which motivate firms to seek to improve their technological capabilities. They also provide assets - information, skills, services and specialised capabilities - that complement firms' in-house resources in technological learning.