One of the most important factors to measure the success of a nation has been the economic growth. In fact, although there are several different theories to explain the source of economic growth, it is reasonable to say technological capability is one of the sources of economic growth (Freeman and Soete, 1997)
Lall (1992) explained three aspects of technological aspects: investment capabilities, production capabilities, and linkage capabilities. All of these factors are considered as the source of competitive advantage because the root of these capabilities, technological knowledge will not be shared or imitated. Thus, one way to explain is that this will lead to the growth of economy.
Determinants of such technological capabilities include various different factors such as the macro economic environment, competitive landscape, and the trade regime. Firm level technological capabilities development is the outcome of investments undertaken by the firm in response to external and internal conditions, and in interaction with other economic agents, private and public, local and foreign (Lall, 1992).
Although there are many firm-specific factors, there are many factors, which are common to almost all firms in a given country/region and can explain the shared develop trend of the firms in the same country/region. Such common factors, in other word, institutions, are important influencing factors of not only firm level technological capabilities, but also the technological capabilities of nation and the development of an economy.
Integrated Financial System (IFS) can be considered as one of the influencing factors that can potentially explain the development of such technological capabilities, which lead to the development of industry. One way to explain the reason why it appear to precede an industrial “take-off” is to refer to the different characteristics of the each stages of product/industry development. Product life cycle model (Vernon, 1966) and industry life cycle (Baum, J & McGahan, A. , 2004) both illustrate the “take-off” stage as the earliest stage of development where market is fragment, radical innovation is ongoing and, therefore needs strong support of IFC.
Although other factors, such as knowledge hubs (e.g., universities), inter-firm and inter-personal network, and intellectual property rights are also the important factors, at this stage IFS sometimes takes greater role then the other factors in many cases. Further, in the later stage of the product/industrial development, importance of IFC gradually will be hindered by other factors such as production resources, government policy (e.g., regulation, incentives), and education. That further emphasizes the role of IFS at the earliest stage of development.
Therefore, observers can perceive that IFC appear to precede an industrial “take-off”, together with the other factors that are important for the early stage of the product/industry development. It actually precedes, but with several other factors.
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