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  • Print publication year: 2009
  • Online publication date: June 2014

6 - Heteroscedasticity


Economic issues include:

Invention versus innovation

Role of technology

Econometric issues include:

Homoscedasticity and heteroscedasticity

Heteroscedasticity tests: the Goldfield–Quandt test, White's test

Weighted Least Squares (WLS)

Data issues include:

Measuring innovation and knowledge: an innovativeness index

Working with outliers

The issue

Innovation is essential for economic growth and development, whether for countries that are technological leaders at the frontier of knowledge or for countries that are ‘latecomers’, catching up on technical advances made elsewhere. Globalisation has interacted with rapid technological change and trade has become increasingly open and competitive, transport costs have fallen, and capital and labour have become more and more mobile. International competitive pressures have become more pronounced and all countries, rich and poor, have had to innovate constantly.

Innovation can also involve finding new ways to do the same old things – for example in introducing new processes that can reduce the price and/or raise the quality of traditional products – such as wine. Overall, being innovative is important everywhere; it has important implications for developing countries as well as developed ones (UNCTAD, 2007); it is as important to individual firms as it is to nations as a whole. It is also important to individual people – we need to keep investing in and refreshing our personal human capital; in modern economies for example, there are many good reasons (social as well as professional) to be computer literate, i.e. to ‘invest’ in our human computing capital.

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Further reading
Fagerberg, J., Mowery, D. and Nelson, R. (eds.) (2004) The Oxford Handbook of Innovation, Oxford: Oxford University Press.
Link, A. N. and Scherer, F. M. (eds.) (2006) The Economics of R&D, Innovation, and Technological Change: Essays in Honor of Edwin Mansfield, New York: Springer-Verlag.
Stock, J. H. and Watson, M. W. (2000) Introduction to Econometrics, Harlow: Pearson Education/Addison-Wesley, Chapter 4.
Thomas, R. L. (1997) Modern Econometrics: An Introduction, Harlow: Addison-Wesley, Chapter 10.
Wooldridge, J. M. (2003) Introductory Econometrics: A Modern Approach (2nd edition), Thomson South-Western, Chapter 8.
Academic articles and working papers
Klette, J. and Kortum, S. (2004) ‘Innovating firms and aggregate innovation’, Journal of Political Economy, vol. 112, no. 5, 986–1018.
Policy Reports
,OECD (2002), OECD Science, Technology and Industry Outlook 2002, Paris: Organisation for Economic Cooperation and Development. Published annually.
,UNCTAD (2005), ‘World Investment Report 2005 – Transnational Corporations and the Internationalization of R&D’. New York and Geneva: United Nations Conference on Trade and Development.
,UNCTAD (2007), Knowledge, Technological Learning and Innovation for Development, Least Developed Countries Report, Geneva and New York: United Nations.