Analyzing knowledge flows by means of vertical integration

Luigi Pasinetti's (1973, 1981) notion of vertically integrated sectors has proven useful in the analysis of such widely varying phenomena as productivity growth (e.g. Dietzenbacher et al., 2000) and pollution (Sánchez-Chóliz and Duarte, 2003). Of course, it also plays a central role in Pasinetti's own theoretical analysis of structural change and economic growth (e.g. Pasinetti, 1981, 1993). In this chapter, we propose a novel methodological framework for analyzing flows of knowledge between the ‘science sector’ (i.e. universities and public research organizations) and the ‘technology sector’ (i.e. the application of knowledge for economic purposes by commercial firms), and for analyzing knowledge flows between economic sectors (i.e. within the technology sector). The method draws to a very large extent on Pasinetti's notion of vertically integrated sectors. The interaction between the (public) science sector and the (private) firm sector is seen as an important determinant of the technological competitiveness of firms and, at a higher aggregation level, regions and countries. For example, it is an often-held policy view that an important reason why Europe lags behind the United States in terms of technological performance is that the interaction between the science and technology spheres is less developed in Europe than in the United States (Dosi et al. (2006) summarize this argument and discuss it critically).