Knowledge that Transforms

This paper examines the roles that publicly funded research play in the process of combinatorial drug discovery. It is shown that firms rely heavily on public research knowledge and, even more so, on education in organic chemistry, genomics and biochemistry. Publicly funded research also led to the creation of dozens of chemical-based companies, provided firms with an access to a larger network of innovators and generated important instruments and methods that are being used throughout the value chain of combinatorial drug discovery. The effects of public research, however, often look different depending on whether one sees them through the prism of larger or smaller firms, EU15 countries or the US, universities or other PROs.

In order to continue on the path to convergence with advanced countries, emerging countries need to strengthen their research capabilities. Often they try to do this through the development of strategic industries. The objective of this paper is to contribute to the debate on the effectiveness of policies aimed at the development of strategic industries in emerging economies. The paper develops a three-phase model for product innovation with capital investment under uncertainty to study the investment decisions of a manufacturer in an industry facing a volatile market demand for new inventions. The findings demonstrate the importance of interactions between market structure, a firm's market power and the associated cost of adjustment. The paper draws out implications for emerging economies with regard to policies striving to develop strategic industries in sectors such as semiconductors and information technology.