Technological innovation is a key element of industrialisation and catch-up in developing countries. Since innovation is costly, risky and path-dependent, groundbreaking innovation is highly concentrated in a few rich countries and amongst a small number of firms. Foreign sources of technology account for a large part of productivity growth in most countries. If foreign technologies are easy to diffuse and adopt, a technologically backward country can catch up rapidly through the acquisition and more rapid deployment of the most advanced technologies (Eaton and Kortum, 1995; Bell and Pavitt, 1993). Therefore, the development process in low income countries can be supported by tapping existing knowledge and know-how. The transfer, adoption and adaptation of knowledge to low income countries hence constitutes an important issue for economic growth and global development.

Technology diffusion and adoption relies on substantial and well-directed technological efforts (Lall, 1992) as well as sufficient human and financial resources and absorptive capacity (Cohen and Levinthal, 1989). It requires appropriate institutions and policies to incentivise and facilitate the process in addition to strong local capabilities to identify the right technology and appropriate transfer mechanism, and to absorb and make adaptations according to local economic, social, technical and environmental conditions (Fu, et al., 2011).  By defining innovation as a new product or process, or new management, organisational or marketing practices (where ‘new’ means new to the world or new to the country or the firm), this project fills in the knowledge gap by exploring determinants and transmission channels for effective innovation creation, diffusion and adoption in LICs under institutional, resource and affordability constraints. In particular, it looks at:

• The barriers to innovation creation and diffusion in LICs under institutional, resource and affordability constraints and the space for innovation policy;
• The determinants of knowledge diffusion in LICs from leading innovators to latecomers, in particular the role of university-industry linkage and inter-firm networks;
• The effect of external knowledge diffusion to LICs, in particular the productivity impact of South-South trade and FDI with a special focus on Chinese trade and FDI in Africa;
• Develops an SME open innovation network model to increase frugal innovation for the poorer societies in LICs.