1SUMMARY REPORT OF THE FOCUS GROUP ON CLUSTERS

21. Cluster analysis and the system of innovation approach Understanding technical change and innovation is crucial for understanding the dynamics of ‘knowledge based economies ’ (OECD, 1996) and ‘learning economies ’ (Lundvall and Borrás, 1997). Differences in innovation performance and the related institutional setting of a country, partly explain variations in economic performance. In modern innovation theory the strategic behaviour and alliances of firms, as well as the interaction and knowledge exchange between firms, research institutes, universities and other institutions, are at the heart of the analysis of innovation processes. Innovation and the upgrading of productive capacity is seen as a dynamic social process that evolves most successfully in a network in which intensive interaction exists between those ‘producing ’ and those ‘purchasing and using ’ knowledge. As a result both innovation researchers and innovation policy-makers increasingly focus on the efficiency and efficacy by which knowledge is generated, diffused and used and on the dynamics of the related networks of production and innovation. Increasingly the notion National Innovation System (NIS) is used as conceptual framework for discussing these type of linkages and interactions among the numerous actors involved in processes of innovation