Technology and Industrial Performance

he capacity of firms to innovate depends on a multitude of factors, not least the efforts they make to create new products or improve pro-duction processes, the extent of skills in their work force, their ability to learn, and the general environment within which they oper-ate. Of all the innovation-related activities of firms – research and development (R&D), design, marketing, ‘tooling up’, acquisition of patents and licenses, hiring of skilled personnel – R&D ex-penditures are particularly important, and their volume and intensity help determine both gains in productivity and success in international markets. In the OECD economies, more than half of all R&D spending is financed by industry, and two-thirds of all R&D investment is performed in the business sector. Although the services sector is responsible for an increasing share of R&D, most new technologies are developed in the relatively small number of high-technology manufacturing industries, not least computers, semiconductors, pharmaceuticals and aerospace. Yet it is less the invention of new products and processes and their initial commercial ex-ploitation which generate major economy-wide benefits than their timely and widespread diffu-sion and use. The economic performance of most manufacturing and services industries depends on putting technology to work by adopting and using ideas and products developed elsewhere. Of all sectors in the economy, it is the service