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11 - Small States, Innovation and Techno-Economic Paradigms

Published online by Cambridge University Press:  05 March 2012

Rainer Kattel
Affiliation:
Tallinn University of Technology
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Summary

Introduction

Innovation, and economic development for that matter, was born in small and, by today's standards, even in microstates like Renaissance city-states. Cities like Venice, Florence, Delft, and others were extraordinarily successful at innovation – using knowledge to create economic gains – and in out-competing nations much larger in geographic, demographic or almost any other measure of size (Hall 1999; Landes 1999, 45–59; Reinert 2007). In these cities, it can be argued that smallness was one of the key factors that contributed to an institutionally highly embedded and yet diversified economy – both then already seen as pivotal ingredients of sustained growth. Indeed, early key political economists such as Giovanni Botero (1590) and Antonio Serra (1613) juxtaposed small citystates with great economic and often military power to natural resource-rich large areas that were economically backward. Today's wisdom seems, instead, to regard smallness as a source of multiple constraints on innovation and economic development in general (e.g., Armstrong and Reid 2003; contrast with Easterly and Kraay 2000). These constraints can be summarized as follows (Walsh 1988; Freeman and Lundvall 1988; also earlier, Robinson 1963):

  1. 1) Almost by definition, small states (particularly the less-developed ones) have small home markets that limit the possibilities for economies of scale and geographical agglomerations.

  2. 2) Small home markets and dependence on exports threaten small states with overspecialization, lock-in, and low diversification of the economic structure.

  3. 3) Small states do not have the financial capabilities or human resources to invest into cutting-edge science, research and development, which makes prioritization, selectivity and adaptability key in policy design.

Type
Chapter
Information
Techno-Economic Paradigms
Essays in Honour of Carlota Perez
, pp. 189 - 202
Publisher: Anthem Press
Print publication year: 2009

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