How Does Confucian Dynamism Influence National Innovativeness

TABLE OF CONTENT

LIST OF EXHIBITIONS AND TABLES

LIST OF APPENDICES

LIST OF ABBREVIATTIONS

1. INTRODUCTION

2. LITERATURE REVIEW
2.1 Confucian D
2.1.1 Confucian
2.1.2 Confucian Dynamism dimension of
2.1.3 Confucian Dynamism and
2.1.4 Confucian Dynamism and economic
2.1.5 Confucian Dynamism and R&D
2.2 National

3. HYPOTHESES DEVELOPMENT
3.1 Links relating to economic
3.2 Links relating to R&D

4. RESEARCH METHODS
4.1 Sample and
4.2 M

5. RESULTS, ANALYSIS AND DISCUSSION
5.1 Results and A
5.2 D
5.2.1 Revised
5.2.2 Micro-level

6. CONCLUSIONS, LIMITATIONS AND IMPLICATIONS

REFERENCES

APPENDICES

LIST OF EXHIBITIONS AND TABLES

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LIST OF APPENDICES

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LIST OF ABBREVIATTIONS

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1. INTRODUCTION

A country’s rate of technological change and advancement is a major determinant for its economic development (Freeman, 1994; Romer, 1990; Solow, 1957). Therefore, policy-makers need to understand what drives the technological change and advancement of the countries they administrate. Of the many factors that affect a society’s ability to invent and advance, one that has yet received limited attention is national culture.

Furthermore, managers of multinational firms implicitly face the selection of a cultural context when selecting favourable locations for their business activities. If national culture had a positive influence on innovative activities, it should be considered in location decisions for innovative activities.

To succeed in a given environment, members of a society adopt the necessary behaviours. Over time, these adopted behaviours transform into different cultural values across societies. Hofstede (1980, p. 25) refers to cultural values as“the collective programming of the mind that distinguishes one human group from another”.While culture exists at many levels, this study uses the concept of national culture. Albeit imperfect, the nation as criteria to distinguish between cultures has been widely accepted amongst researchers and practitioners (Kirkman, Lowe, & Gibson, 2006). Therefore, the termscultureandnational cultureare used interchangeably in this study. Furthermore, the termnationand its geographical counterpart, thecountry, are used interchangeably. Most of the research about cultural influences on business and management during the past three decades has been based on Hofstede’s five-dimensions framework (Hofstede, 1980; Hofstede & Bond, 1988). Despite of some criticism, researchers have preferred this framework because of its “clarity, parsimony, and resonance with managers” (Kirkman, et al., 2006, p. 286). On the national-level, the framework has been used to study the consequences of culture on conflict management (e.g. Smith, Dugan, Peterson, & Leung, 1998), human resource management (e.g. Newman & Nollen, 1996), leadership (e.g. Shenkar & Zeira, 1992), work-related attitudes (e.g. Jaw, Ling, Wang, & Chang, 2007), entrepreneurship (e.g. Hayton, George, & Zahra, 2002), entry modes (e.g. Kogut & Singh, 1988), FDI (e.g. Benito & Gripsrud, 1992), societal outcomes (e.g. R. H. Franke, Hofstede, & Bond, 1991), amongst other topics.

When referring to innovation,this study mainly refers to the notion of invention, meaning novelty, rather than the notions of commercialisation and implementation which are also inherent to the term. Novelty, in turn, is viewed relative to the unit of observation, that is the nation, since absolute novelty is nearly impossible to justify (Anderson, de Drew, & Nijstad, 2004). Therefore,national innovativenessis treated as the rate of innovation in a country. Economists have traditionally argued that differences in national innovativeness can be explained by rather tangible factors such as industrial structure, economic wealth, research and development (R&D) intensity, infrastructure, industry- and market structure, resource endowments, and country size (Freeman, 1994; Nelson, 1993; Romer, 1990). However, international business research has indicated that national culture also influences a nation’s rate of innovation. Jones and Teegen (2001) have shown that national culture partly explains the selection of location for multinational firm R&D activities. It has also been shown that some cultural profiles accomodate innovative activities better than others (Shane, 1992, 1993). These studies have focused on Hofstede’s (1980) initial four dimensions of national culture neglecting the fifth dimension that was later added to the framework through the combined effort of the Chinese Culture Connection (1987), and Hofstede and Bond (1988).

The Confucian Dynamism (CD) dimension, also called long-term orientation, is an appealing and, since it indicates a society’s attitude towards novelty, arguably the most suitable dimension to study culture’s impact on innovation. Long-term orientated cultures can be characterised by emphasis on action and future possibilities, while short-term orientated cultures tend to preserve present and past realities and structures (Hofstede & Bond, 1988).

Another reason why CD seems to be the most suitable cultural dimension to study innovation on the national level are the findings of Franke, Hofstede and Bond (1991). These researchers found a significant positive relationship between CD and economic growth for 20 countries, but no relationship for any of the other four dimensions. Considering that national innovativeness is a major driver for economic growth (Freeman, 1994; Romer, 1990; Solow, 1957), a relationship between CD and national innovativeness seems most reasonable. Yet another argument why CD is the most suitable dimension to study the impact of culture on national innovativeness is its consistent impact on the innovation process. The innovation process can be roughly distinguished in two major stages: initiation and implementation. The initiation stage refers to the generation of novel ideas, while the implementation stage refers to the exploitation of these ideas. Conceptual papers have argued that CD is the one dimension with consistent positive impact on innovation, regardless of the stage of the innovation process (Jones & Davis, 2000; Nakate & Sivakumar, 1996). Therefore, CD seems to be the most suitable cultural dimension to study the impact of cultural values on national innovativeness.

In summary, understanding the impact of national culture on a society’s ability to innovate is important to both managers and policy-makers. Academic scholars have conducted some, but not enough, research on the impact on national culture on national innovativeness. In particular, the empirical literature lacks to explain how long-term orientated cultural values impact national innovativeness. Since the conceptual and related empirical literature strongly indicates this link, this paper seeks to contribute to the broader field of cross-cultural research by answering the following research question:

How does long-term orientation influence national innovativeness?

To answer this research question, I propose how CD could be linked to national innovativeness. Furthermore, the proposed links are tested with macro-level data from 19 countries for the years 1996-2006. Lastly, in order to answer the “how” in the research question, I introduce some relevant micro-level literature to discuss the statistical results.

2. LITERATURE REVIEW

To propose how CD could influence a society’s innovativeness, the philosophical principles underlying the dimension as well as relevant research employing the dimension is reviewed in the first part. In the second part, relevant macro-level literature on innovation is reviewed to identify major determinants of a nation’s innovativeness. Attempting to include elements of the systematic review process but stopping short of claiming comprehensiveness, a systematised review is conducted (for a literature overview see appendix 3). Therefore, the limitations of systematised reviews need to be noticed. Such reviews tend to be more biased than full systematic reviews. While basic systematicity is applied, the quality assessment and synthesis of included articles does not follow a modelled process (Grant & Booth, 2009). This compromise is necessary due to the fact that this study is conducted in the context of a ten-week postgraduate dissertation and cannot draw upon the resources required for a full systematic review such as a second researcher reviewing the literature.

2.1 Confucian Dynamism

2.1.1Confucian teachings

Kǒng Fūzǐ, whom Christian missionaries renamed Confucius, was a Chinese civil servant and philosopher living from 551-478 BC. Known for his wisdom, he was constantly surrounded by disciples who recorded what is known as his teachings. Confucian teachings constitute lessons and practical ethics about humanity without religious connotation. Different from ancient Western philosophy, Confucianism puts greater emphasis on extensional truth. Containing the scientific truth, such as mathematical or empirical knowledge, the extensional truth adds a form of intentional truth, such as sensible feelings and bounded rationality (Mou, 1983). Thus, in Confucianism truth is dependent on the subject and therefore always relative, never absolute or exclusive. In essence, the Confucian teachings can be outlined in four key principles (Hofstede & Bond, 1988; Tweed, 2002).

Social stability is based on hierarchical relationships: The individual stands in different relationships with different people. The five relationships in Confucianism are ruler/ruled, father/son, elder brother/younger brother, husband/wife, and older friend /younger friend. All stress respect for seniority and mutual obligations. The junior owns a senior respect and obedience; the senior owns the junior consideration and protection (Hofstede, 1988). Confucius believed that virtue is achieved by observing and learning from senior role models (Tweed, & Lehman, 2002).

Collectivism is the basis for all social organisations: A person is not primarily an individual, but a member of a family. Children need to learn to overcome their individuality in order to maintain the family’s harmony. Harmony is created by maintaining “face”, meaning each individual’s dignity. Social relations are to conduct in a way that face is saved. Paying respect to someone is referred to as “giving face” (Hofstede, 1988, p. 8). The principle of collectivism is also found in Confucian approaches to learning and knowledge creation. Truth is not found in the self, but along with good character traits learned from the collective (Tweed, & Lehman, 2002)

Treat others as one would like to be treated oneself: Confucius argued that behavioural reform is the primary goal of education because virtuous behaviour ensures individual success and social harmony (Tweed, & Lehman, 2002)

Success with regard to ones tasks in life requires effortful and pragmatic acquisition of skills and knowledge, thrift, patience and preservation: For Confucius, learning was closely related to hard work. Effort is more important than ability. He emphasised the importance of making an extended effort to achieve sustainable transformation and improvement as opposed to pursuing quick results. He also urged his students to continuously acquire knowledge rather than to focus on generating ideas. Innovation is welcomed, but the tendency to criticise present realities without extensive underlying knowledge was seen as a fault (Tweed, & Lehman, 2002; Hofstede, & Bond, 1988).

2.1.2 Confucian Dynamism dimension of culture

In international business (IB) research, a cultural dimension which partly represents Confucian philosophy was empirically established for 23 countries in a combined effort by the Chinese Culture Connection (1987) and Hofstede and Bond (1988). In contrast to Hofstede’s (1980) initial four dimensions, the CD-dimension has yet received little attention from IB-scholars (Fang, 2003; Kirkman, et al., 2006). Nonetheless, the dimension is appealing and unique in that it indicates a culture’s attitude towards time through two sets of Confucian values. It is based on survey instruments developed by Chinese researchers. Most previous cultural value studies were based on survey instruments designed by Western researchers (Robertson, & Hoffman, 2000). Hence, previous measures of culture focused on finding values that were inherent in Western cultures (Hofstede, 1994). CD, on the other hand, provides an Eastern perspective on cultural values. The dimension can be understood as indicative measure for“the acceptance of legitimacy of hierarchy and the social valuing of perseverance and thrift, all without undue emphasis on traditions and social obligations”in a society (Franke, Hostede, & Bond, 1991, p. 167). Exhibit 1 presents the values associated with the dimension (adapted from Hofstede, & Bond, 1988, p. 16)

Exhibit 1: Confucian Dynamism values

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- Personal steadiness and stability - Persistence (perseverance)
- Protecting and giving face - Acceptance of hierarchical
- Emphasis of traditions relationships with mutual obligations
- Reciprocation of greetings, - Thrift

favours, and gifts-Having a sense of shame

Source:Hofstede & Bond (1988, p.16)

Referring to the negative pole of the dimension,personal steadiness and stabilitymeans prudence and trusting the well-known and accepted when making decisions. People with strong need for personal steadiness and stability tend to lack entrepreneurial spirit and dynamics. Protecting and giving facein response to criticism and questioning from others is a social concept to preserve the own and other’s dignity and social status. Even though present in all cultures (Gudykunst, Stella, & Chua, 1988), face-consciousness is particularly strong in more static, tradition-orientated cultures (Hofstede, 1991). The concept of face not only applies to private concerns, but also to interactions in communities and organisations (Schuette & Ciarlante, 1998). Emphasis of traditionsmeans a tendency to preserve past realities, structures and relationship. Lastly, the meaning ofreciprocation of greetings, favours and giftsis well captured by a metaphor in Fang (2003, p. 358):”If you honour me a foot, I will honour you ten feet in return”.

Referring to the positive pole of the dimension,persistencemeans that virtue is the outcome of effort. This value has also connotations to patience and tolerance of others (Fang, 2003). Accepting relationships with mutual obligationsimplies ordering of relationships by status with emphasis on each person’s task in the hierarchy. This contributes to social stability and harmony. Thriftrefers to the Confucian value of not spending more than necessary. Extensive consumption is taboo. Moderation is enjoyed in all aspects of life. Having a sense of shamein refers to a person’s moral, integrity and courage.

The values underlying the CD-dimension can be confusing, particularly to western minds. Redpath and Nielsen (1997, p. 337) state: “the dimension was most difficult to apply, because distinctions between the two ends of the spectrum are unclear and often seem contradictory”. Such confusion demonstrates just how powerful the impact of culture is. Culture does not only shape our values, attitudes and behaviours, but also determines which theories we are able to create and comprehend (Hofstede, 1994).

Hofstede and Bond (1988, p. 17) state:“If this dimension (Confucian Dynamism) is somewhat puzzling to the Western readers, they should not be surprised. The dimension is composed precisely of those elements that our Western instruments had not registered”.

2.1.3 Confucian Dynamism and innovation

High CD cultures can be characterised by future-orientated values with emphasis on proactiveness, strong work-ethics and thrift. In contrast, low CD cultures maintain a more static mentality with tendency to preserve past and present realities (Hofstede & Bond, 1988). Innovation requires investing in activities with uncertain payoffs and uncertain time frames (Steensma, Marino, Weaver, & Dickson, 2000). Such investments are risky and can often only be justified with anticipation of long-term payoffs. Long-term oriented cultures are arguably more likely to recognise the long-term benefits of innovative activities. More short-term orientated cultures would rather invest in activities that maximise short-term gains.

There is a small body of literature that relates cultural long-term orientation to innovation-related topics. Herbig and Miller (1992) propose long-term orientated traits support a society’s ability to source and adopt innovations. In another study, Nakata and Sivakumar (1996) propose that long-term orientation, by emphasis on action and future possibilities, promotes the development of new products. Short-term orientation works against new product development, because the underlying values encourage staying within accepted and well-known boundaries. In an empirical study, Lin (2009) investigates the impact of national culture on the innovation activities of major automakers in 14 countries. The results confirm a significant and positive impact of cultural long-term orientation on innovation performance. They argue that the Confucian trait most relevant to innovation is perseverance. This cultural value provides an inherent source of strong work ethic and motivation to complete projects successfully. A Japanese top executive of Honda has pointed out that perseverance can be a national competitive advantage:” We are very different from the rest of the world. Our only natural resource is the hard work of our people” (Peters & Waterman, 1982, p. 39).

Hence, there seems to be a link between long-term orientation and innovativeness of a culture. Since only a few studies are concerned with this link, it is useful to consider further consequences of cultural long-term orientation. In order to gain a better understanding of how this dimension could influence national innovativeness, I also review the literature on cultural long-term orientation in relation to economic development and R&D.

2.1.4 Confucian Dynamism and economic development

One stream of research seems to be increasingly interested in economic outcomes of culture. Various studies have acknowledged a relationship between national culture and economic development (Guiso, Sapienza, & Zingales, 2003, 2006; Johnson & Lenartowicz, 1998). Franke, Hofstede, and Bond (1991) found that long-term orientated cultures have higher economic growth rates than short-term orientated cultures. Using a sample of 20 countries, Hofstede’s (1980, 1988) cultural dimensions explained more than 50 percent of cross-country differences in economic growth rates during the periods 1965-1980 and 1980-1987. The cultural dimension with the most explanatory power was CD. Considering the values underlying the dimension, some explanations can be made. Acceptance of hierarchy and mutual obligationsin relationships is a shared value in long-term orientated cultures. Such a sense of hierarchy and complementarity of relations arguably favours entrepreneurship. Asense of shameenables sensitivity and concern for social contacts. Strong social networks are beneficial for individuals’ economic success (Hofstede & Bond, 1988). High CD drives individuals to pursue their goals with strongperseveranceand discipline. This includes personal economic goals as well as career and work-related goals. Empirical studies confirm the impact of cultural values on work values (Jaw, et al., 2007).

Low presence of long-term orientated cultural values also seems to aid economic growth. Too much concern for the own and others’ reputation might distract from the actions necessary to get the business done. For example, face-concerned managers are more prone to hold onto business projects suggested by them, even after viability arise. Thereciprocation of greetings, favours and giftsas a social manner is related to the concept of face. Such gestures are social norm in short-term orientated cultures, however, they have no effect on economic performance (Hofstede & Bond, 1988). Furthermore, too muchemphasis on traditionsand past structures impedes economic development. China’s rapid economic growth throughout the past decades is at least partly related to the ease it has accepted and adopted Western technology. Lastly,personal steadiness and stabilitydiscourages adaptations to changes in dynamic environments. Such static mindsets lead to rigid business models and missed opportunities. (Hofstede & Bond, 1988).

It seems plausible that the dominant set of cultural values in a society not only determines traditions, family life, and social norms, but also the economic life of individuals. The latter, in turn, is shown in a nations’s economic statistics. Yeh & Lawrence (1995) point out that national culture is a necessary, albeit not a sufficient, condition for economic growth. Franke et al. (1991) go even further and speculate that long-term orientated cultural values might explain the relatively high growth rates of many East Asian economies throughout the past decades.

2.1.5 Confucian Dynamism and R&D

Another stream of research indicates that some cultures could be better in inventing than others. Dunning’s (1988) eclectic paradigm suggests that certain locations offer advantages beyond firm-specific capabilities. He also argues that such location-specific advantages vary with the activity performed. Many multinational firms invest in R&D activities outside their home country (Jones & Teegen, 2001). Considering the costs of operating in a foreign environment, firms seem to expect considerable payoffs from offshoring R&D activities. Looking on national culture as location specific variable, a small body of literature suggest that certain cultural contexts facilitate R&D and other inventive activities better than others (Jones & Davis, 2000; Nakata & Sivakumar, 1996; Shane, 1992, 1993). Shane (1992, p. 39) concludes that “some cultures have a comparative advantage in inventive activity that leads them to develop new technologies, ideas, and products”. Of the few studies that examined a link between cultural long-term orientation and innovative performance (Ambos & Schlegelmilch, 2008; Jones & Davis, 2000; Nakata & Sivakumar, 1996), only one is based on empirical results (Ambos & Schlegelmilch, 2008). Using a dataset of 139 R&D laboratories of multinational companies located in 21 countries, this empirical study found cultural contexts with high Confucian Dynamism have a positive impact on R&D performance.

Nevertheless, R&D projects remain a risky business, involving high uncertainty about their payoff while requiring long-term resource commitments. In this regard, private R&D is a bit like academic research – a longsome process with a previously unknown results. In order to continuously invest in R&D activities, absorb R&D failure, and explore new technologies before an actual need arises, firms require funds. Therefore, firms rely on either internally generated funds or a supply of external funds to support their R&D activities. Referring to internal funds, the Confucian valuethriftleads to savings. Read (1993) finds empirical evidence for a relationship between long-term orientation of a nation and several measures of savings. This suggests, firms in long-term orientated cultures should have larger reserves of funds to support R&D activities than firms in short-term orientated cultures (Hofstede & Bond, 1988). Furthermore, cultural emphasis on relationships with mutual obligations encourages long-term relationships between banks and firms. For example, in Japan and Korea the main bank often holds a considerable equity share of the firm (Hodder, 1991). The bank’s equity holding also means that it is more likely to provide funds for R&D activities to ensure the firm’s long-term growth.

In an empirical study, Hundley, Jacobson, & Park (1996) compared firms’ R&D behaviour in relation to their previous-year capital reserve and profits. Firms from the US – a short-term orientated culture - invested in R&D in response to increased previous-year profits and capital reserves. Firms from Japan – a long-term orientated culture – were found to invest continuously in R&D regardless of their previous-year capital reserve. Interestingly, Japanese firms even increased their R&D effort in response to decreasing profits. This suggest, Japanese firms interpret decreasing profits as signal to increase resource commitments to new products and technologies whereas US-firms interpret decreasing profits as a signal to cease R&D investments. One explanation could be the stark difference in time-orientation of the two cultures. Whereas US-managers are more concerned to at least maintain short-term results in order to satisfy their stockholders and other interest groups, Japanese managers are expected to be mindful of long-term gains to ensure future firm viability (Hundley, et al., 1996).

In summary, the literature on CD suggests that the cultural values underlying the dimension favour economic growth as well as innovative activities. This could be associated with stronger social networks, entrepreneurial dynamics, work-ethics, and a shared mentality that emphasises future possibilities and long-term gains over maximisation of short-term profits.

2.2 National innovativeness

There is strong variation among countries in their ability to innovate. In order to answer the research question, this section reviews major factors that cause differences in national production of observable innovation. For this purpose, I turn to the literature derived fromidea-driven growth theory(Romer, 1990) and the literature onnational innovation systems(Lundvall, 1992; Nelson, 1993).

Idea-driven growth theory(Romer, 1990) argues that a nation’s knowledge stock and the size of its R&D sector are important for its ability to innovate. The number of new ideas produced by a nation can be understood as a function of: (i) the share its economy devotes to the R&D sector and; (ii) the knowledge stock available to the R&D sector.

(i) The allocation of resources to R&D depends on R&D performance. If R&D activities result in many new ideas with commercial potential, firms and other R&D actors are willing to increase, or at least continue, investing in R&D. The general importance of national R&D effort for national rates of innovation has been empirically supported. Furman et al. (2002) found that a large part of the differences in national innovativeness across OECD countries can be explained by differences in the share of their economies devoted to R&D. Along the same line, Buesa et al. (2010, p. 724) conclude from their investigation of OECD countries that “(national) innovation output depends in the first place on the effort made in allocating resources to R&D”. Similar evidence was found on the firm-level of analysis. Using a sample of Spanish high-tech manufacturing and knowledge intensive service firms, Segarra-Blasco (2010) found a significant relationship between the share of R&D employees and R&D expenditure on the one hand, and firm-level innovativeness on the other hand. Jefferson, Bai, Guan, & Yu (2006) find similar results using data from Chinese manufacturing firms. Therefore, it appears that a nation’s rate of innovation is partly the outcome of R&D effort.

(ii) The rate of new ideas generated by a nation is also sensitive to the knowledge stock available to its R&D sector. The argument is based on a ‘standing on the shoulders’ effect. The greater the knowledge resources available, the more easily new ideas can be understood, developed, and implemented (Dawar and Dutton, 1986). Empirical research has confirmed the influence of the knowledge stock available to a nation on its ability to innovate. Furman, Porter and Stern (2002) find a positive relationship between GDP per capita, and the number of new patent filings of a nation. A measure of economic development (GDP per capita) is used because it reflects a nation’s ability to transform new ideas into economic output. Since such transformation happens through the adoption and diffusion of new products and technologies, economic development at least partly reflects the knowledge stock available and utilised by a nation’s R&D sector (Furman, et al., 2002).

The literature onnational innovation systems(Lundvall, 1992; Nelson, 1993) adds more nuanced, country-specific determinants for national innovativeness to the cross-country generalisations offered by idea-driven growth theory. The national innovation systems literature postulates that national innovativeness depends on a broad number of interdependent variables such as education level (Shenkar & Luo, 2004), competition and demand conditions (Cohen & Levin, 1989; Mowery & Rosenberg, 1979; Symeonidis, 1996), availability of investment capital (Savignac, 2008), size and geographical distribution of innovative firms (Cohen & Levin, 1989; Porter, 1990), linkages to universities (Mowery & Sampat, 2005), the degree of intellectual property protection (Allred & Park, 2007), and national culture (Shane, 1992, 1993), amongst other factors. For a statistical factor analysis see also Buesa et al. (2010).

Some of these explanatory variables seem to be more supported than others. Whereas the impact of university research on national innovativeness finds no consistent support (Anselin, Varga, & Acs, 1997; Buesa, et al., 2010), a high education level as well as a strong local technology base has been already recognised by idea-driven growth theory as important determinant for innovation. In absence of skilled scientists and engineers and without access to latest technology, a nation cannot be expected to produce much innovative output. Another important determinant is the extent to which the national context is both competitive and rewarding for innovators. Firms that invest in R&D generally do so because they expect increased market power as a result of innovative outcomes (Buesa, et al., 2010; Furman, et al., 2002). This is the principle underlying the patent system; it provides incentive to innovate through the promise of increased market power in a competitive market (Cohen & Levin, 1989). In an empirical study across 29 countries, Allred and Parker (2007) confirm that the strength of the national patent protection positively affects firm’s R&D effort and national patent filings. Yet another determinant of national-level innovation is the nature of the domestic demand. The presence of a sophisticated, quality-sensitive consumer base open for advanced products stimulates innovation. Demand conditions much influence whether firms will move from imitative, low-price offerings to developing new technologies, product designs, and service solutions (Porter, 1990). Yet another factor that is important for innovative activities of firms is the amount of investment capital available for such activities. In an empirical study, Savignac (2008) finds that financial constraints significantly reduce the likelihood that firms engage in any kind of innovative activity. This is coherent with the previous point made that firm need a certain level of financial reserves to be in the position to invest in R&D. Lastly, an influence of national culture on national innovativeness has also been recognised. Shane (1992, 1993) finds that variations in national rates of innovation can be partly explained by differences in cultural profiles.

In summary, the literature on national innovativeness suggests that a nation’s ability to innovate generally depends on the aggregate resources allocated to R&D activities, and the knowledge available to these R&D activities. More country-specific determinants of national innovativeness include the availability of skilled human resources, local technology levels, intensity of competition, and the strength of the IP protection system. Reconciling the finding that national culture influences innovation with the identified determinants of national innovativeness, I suggest that national culture might influence national innovativeness thorough these determinants.

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