Public R & D and industrial innovations at the project levels: an exploration of Taiwan's public research projects

Contemporary Economic Policy, Oct, 2005 by Show-Ling Jang, Guo-Gang Huang

I. INTRODUCTION

Economic development policies in Taiwan in the late 1950s and 1960s favored the exportoriented manufacturing sector that mostly produced labor-intensive products such as garments, toys, and furniture. Though the value of export to the United States contributed roughly 40% of Taiwan's total exports in the 1970s, no patents in the high-technology area had been granted to Taiwanese companies by the U.S. Patents and Trademarks Office until the mid-1980s. Taiwanese government's effort to enhance her manufacturing capability included a series of government-subsidized research and development (R & D) projects that began in the early 1970s. Government support for the island's attempt to emulate California's Silicon Valley in Hsinchu, Taiwan, took the form of three institutions established for the purpose of technology diffusion: (1) the Industrial Technology Research Institute (ITRI), (2) the Hsinchu Science-based Industrial Park, and (3) two neighboring universities with a heavy emphasis on science and engineering study. The resultant high-technology clustering led to a succession of collaborative R & D ventures between public institutions and private firms.

Research studying the public R & D and private sector linkage has devoted considerable effort in the past to measuring the effectiveness of industrial policy in developed economies using firm-level or country-level data. Such literature includes Irwin and Klenow (1996), who evaluated the U.S. Sematech program; Wallsten (2000), who analyzed the U.S. Small Business Innovation Research program; Branstetter and Sakakibara (1998, 2002), who examined the performance of Japanese research consortia in high-tech industries; and Stern et al. (2000), who explored the determinants of country-level innovative capacity in Organisation for Economic Co-operation and Development countries.

Literature focusing on Taiwanese government's effort toward developing the island into a science and technology (S & T) center includes Mathews's case studies (1997, 2002), in which he examined the evolution of the organizational architecture from the viewpoint of management where he attributed Taiwan's success in the high-tech industry to its capacity to leverage resources and to pursue a strategy of rapid catch-up, much to the credit of its government. To the authors' knowledge, none of the previous studies has quantitatively analyzed the R & D production behaviors of public industrial R & D in Taiwan. This article targets this issue using a set of newly accessible project-level data. Rather than following the conventional approach using firm-level or country-level studies, the present sample contains data on 252 public-funded annual research projects conducted by the ITRI in Taiwan during the period 1991-99. The data are compiled from the online database of the Ministry of Economic Affairs (MOEA), final reports on ITRI S & T research projects, and the authors' surveys of the characteristics of the 5902 cases of locally transferred technologies involved within these S & T projects.

In terms of data construction in the empirical analysis, the authors adopt two new approaches. The conventional wisdom for measuring innovation output uses the number of patents achieved by an entity. Instead of this standard index, the authors measured innovation out put by the monetary value of patents, applying the concepts of willingness to pay and propensity for patenting. The authors also upgrade the measurement of labor input by incorporating a quality-adjusted indicator in the R & D production function.

The empirical study includes testing the impacts of project characteristics on project-level productivity. These characteristics involve projects with an orientation toward process or product innovation that clearly had a technological focus. Effects of demographic characteristics of the participating firms, such as geographic proximity and firm size, are also tested.

The organization of this article is as follows: The next section provides description of the ITRI's activity in supervising the operations of S & T projects, presents the models for empirical measurement, and discusses the data sources. Section III analyzes the regression findings. Conclusions are in section IV.

II. EMPIRICAL MODELS AND DATA

A. S & T Project Operations by ITRI

The ITRI was established under the auspices of the MOEA in 1973 with a mandate to undertake industrial research and foster the technological catch-up and learning of private enterprises. The ITRI is to carry out the S & T research projects on behalf of the MOEA. Its focus is on the development of both precompetitive technologies and infra-technologies. Twenty percent of all government-funded industrial R & D in Taiwan goes to support MOEA programs, and more than half of this is appropriated for the ITRI's research activity. The scope of the ITRI's S & T projects includes the following four fields: electronics and information technology (ELEC); machinery and automation (MACH); chemicals and materials (CHEM); and energy, sustainable development, and biomedical (BIO). Table 1 shows that ITRI's S & T projects are unevenly distributed across sectors, with the electronics and information sector dominating all others in terms of both funding and labor force. The average R & D spending per project in the electronics and information sector was about US$9.8 million--much higher than in the other three sectors. In addition, more than 56% of the total staff worked in the electronics and information sector. The total amount of pubic industrial R & D funding within this sector came to approximately US$1.06 billion during the period 1991-99, an amount equivalent to the sum of government subsidies of the 10-year Sematech program in the United States. (1) Throughout this period, the ITRI has acted as the primary vehicle for the leveraging of advanced technologies from abroad and for their rapid dissemination of the newly acquired technology to local firms. As shown in Table 2, ITRI was involved in approximately 165 cases of international technology transfer during the sample period, with 114 of these cases involving transfers from the United States. (2) Based on technology attained during the early stages and its own efforts in subsequently improving both the absorptive capacity and ability to generate new innovations, the ITRI has been successful in gaining more than 1000 patents issued by international entities for its S & T projects across the board during the period 1991-99. A whopping 65% of the total patents were concentrated in the electronics and information sector.