Beyond Value Capture - Exploring Innovation Gains from Global Networks

23 Pages Posted: 12 Mar 2016 Last revised: 24 Oct 2016

See all articles by Dieter Ernst

Dieter Ernst

East-West Center; Centre for International Governance Innovation (CIGI)

Date Written: February 23, 2016

Abstract

Increasingly complex and diverse global corporate networks of production (GPNs) and global innovation networks (GINs) are transforming international trade, production and innovation, creating new, yet little understood, challenges for national policies that seek to foster economic growth and prosperity through productivity-enhancing innovation. As countries are integrated into these global networks, they are forced to rethink a broad array of policies. A fundamental tension needs to be addressed between global knowledge sourcing, which requires trade liberalization, and domestic capability development, which requires supporting industry and innovation policies.

To reap innovation gains from global networks, countries need to address simultaneously two challenges. From the “outside”, national policies have to deal with a multitude of bilateral and regional trade agreements (RTAs) and attempts to establish a new architecture of mega-regional trade agreements, like the Transpacific Partnership (TPP), that seek to create and harmonize new international benchmark standards for national policies, rules and regulations, e.g., for intellectual property, technical standardization, government procurement, taxation, and competition policy. National policies need to take into account these changes in the governance of the international economy.

This chapter focuses on a second set of challenges that originate from the “inside”: countries differ in their capabilities to learn and innovate, and hence they differ in their capacity to capture potential gains from integration into GPNs and GINs. I outline a conceptual framework and describe research needed to trace the dissemination (or lack thereof) of innovation resources and capabilities through knowledge-sharing within those networks that span developed and developing worlds. The analysis focuses on the experience of China and other leading Asian electronics manufacturing exporting countries. All of these countries are deeply integrated into international trade and FDI through GPNs, and in some cases, through GINs.

I argue that research on global networks needs to move beyond value capture. Instead more effort should be invested in exploring whether and how integration into these networks might foster or erode a country’s absorptive capacity and firm-level innovation capabilities. The chapter reviews what is known about driving forces and characteristics of GPNs and GINs, and highlights the increasing diversity and complexity of these networks in the electronics industry. To establish whether global network integration might foster or erode the host country’s absorptive capacity and firm-level innovation capabilities, three scenarios are considered: i) the “Gains from Trade” effect; ii) the “Domestic Disintegration” effect; iii) the “Innovation Trap” effect; and iv) the “Limits to Modularity” effect.

Keywords: Global production network, global innovation networks, global value chains, value capture, innovation, trade and innovation, innovation policies, trade policies, mega-regional trade agreements.

JEL Classification: F13, F23, F63, L24, L63, N6, O19, O24, O25, O31, O32, O53

Suggested Citation

Ernst, Dieter, Beyond Value Capture - Exploring Innovation Gains from Global Networks (February 23, 2016). East-West Center Workshop on Mega-Regionalism - New Challenges for Trade and Innovation. Available at SSRN: https://ssrn.com/abstract=2737055 or http://dx.doi.org/10.2139/ssrn.2737055

Dieter Ernst (Contact Author)

East-West Center ( email )

1601 East-West Road
Honolulu, HI 96848-1601
United States

Centre for International Governance Innovation (CIGI) ( email )

57 Erb Street West
Waterloo, Ontario N2L 6C2
Canada

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