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This study uses new information to determine the role of foreign affiliates in productivity growth. The study has three aims. Firstly, the study quantifies the contribution of foreign affiliates to productivity growth in OECD countries using a growth accounting approach. Secondly, the analysis shows how much of this contribution derives from an increase in the employment share of foreign affiliates in the host country relative to an increase in the productivity of existing foreign affiliates. Thirdly, the study compares the presence of foreign affiliates across OECD countries. The information is derived by matching three OECD data sources: the STAN database for industrial analysis, the AFA (Activities of Foreign Affiliates) and FATS (Foreign Affiliates in Trade and Services) databases. Despite its limitations, this combined database provides longitudinal industry level information on both the presence and the productivity of foreign affiliates in OECD countries. The analysis confirms that foreign affiliates can make an important contribution to productivity growth. The contribution is larger in the manufacturing sector. In the services sector and in low-tech manufacturing sectors, the largest component of the contribution of foreign affiliates is due to the increased employment share of foreign affiliates. In medium- and high-tech sectors, the contribution is mainly driven by stronger productivity growth of existing foreign affiliates. In the United States the contribution is consistently driven by stronger productivity growth of existing foreign affiliates in both the manufacturing and the services sectors.

Science and Technology

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Investment in knowledge-based capital (KBC) – assets that have no physical embodiment, such as computerised information, innovative property and economic competencies – has been rising significantly. This has implications for innovation and productivity growth and requires new thinking on policy. The returns to investing in KBC differ significantly across countries and are partly shaped by structural policies, which influence the ability of national economies to reallocate scarce resources to firms that invest in KBC. In this regard, well-functioning product, labour and venture capital markets and bankruptcy laws that do not overly penalise failure can raise the expected returns to investing in KBC by improving the efficiency of resource allocation. While structural reforms offer the most cost-effective approach to raising investment in KBC, there is a role for innovation policies to raise private investment in KBC towards socially optimal levels. Indeed, R&D tax incentives and, as a finding that contrasts with previous research, direct support measures can be effective, but design features are crucial in order to minimise the fiscal cost and unintended consequences of such policies. Well-defined intellectual property rights (IPR) are also important to provide firms with the incentive to innovate and to promote knowledge diffusion via the public disclosure of ideas. However, such IPR regimes need to be coupled with pro-competition policies to ensure maximum effect while the rising costs of the patent system in emerging KBC sectors may have altered the trade-off inherent to IPR between the incentives to innovate and the broad diffusion of knowledge.

Science and Technology --- Economics

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Investment in knowledge-based capital (KBC) – assets that lack physical embodiment, such as computerised information, innovative property and economic competencies – has been rising significantly. This has implications for innovation and productivity growth and requires new thinking on policy. The returns to investing in KBC differ significantly across countries and are partly shaped by structural policies, which influence the ability of economies to reallocate scarce resources to firms that invest in KBC. Well-functioning product, labour and venture capital markets and bankruptcy laws that do not overly penalise failure can raise the expected returns to investing in KBC by improving the efficiency of resource allocation. While structural reforms offer the most cost-effective approach to raising investment in KBC, there is a role for innovation policies to raise private investment in KBC towards the socially optimal level(s). Indeed, R&D tax incentives and, as a finding that contrasts with previous research, direct support measures can be effective, but design features are crucial in order to minimise the fiscal cost and unintended consequences of such policies. Welldefined intellectual property rights (IPR) are also important to provide firms with the incentive to innovate and to promote knowledge diffusion via the public disclosure of ideas. However, such IPR regimes need to be coupled with pro-competition policies to ensure maximum effect while the rising costs of the patent system in emerging KBC sectors may have altered the trade-off inherent to IPR between the incentives to innovate and the broad diffusion of knowledge.

Science and Technology --- Economics

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This paper shows that China is catching up rapidly with other dynamic Asian economies and the Triad economies on a score of indicators relating to the knowledge-based economy. Taking into account that a number of measurement issues hamper international comparability to varying degrees, some of the main results are the following. • Economic growth in China has outpaced the other economies substantially. Nevertheless, GDP per capita is still considerably smaller than that of the other economies. • The main contributor to GDP in China is industry (mining; manufacturing; electricity, gas and water supply; and construction), which saw its share rise by 10 percentage points to 52% between 1990 and 2002. • Trade in goods as a percentage of GDP doubled between 1990 and 2002, reaching a level well above that of the Triad economies. The largest contribution to this expansion was made by.

Knowledge economy.