manufacturing compared to natural resources-based activities has constrained countries from realizing the full potential of their natural advantages. As demonstrated by De Ferranti et al. (2002), natural resource-based activities in the region can be converted into knowledge-based industries and lead growth for long periods of time.

Even if economies see their challenge not in creating new technology, but transferring and adopting existing technologies, they cannot afford not to develop a domestic R&D capacity. Sufficient capacity is necessary to identify scientific and technological options, to adapt existing technologies to local needs, and to create technologies that are unique to the country (Fagerberg and Verspagen 2002). As suppliers of advanced education and dominant players in research, universities in Latin American play a central role in developing such a capacity.

# **1.3 University-industry linkages in Latin America**

Data from recent innovation surveys conducted in Argentina, Chile, Colombia and Mexico suggest that considerable benefits can be accrued from increased university-industry collaboration. An analysis of firm-level data from Chile finds that collaboration with universities increases the propensity of a private enterprise being involved in patenting by 35 percent, keeping all other explanatory variables in the model constant. Collaboration also increases the likelihood of company involvement in product innovation, whereas the analysis finds no significant effect on process innovation (Table 1).

**<u>Table 1. Marginal effect of company characteristics on innovation</u>**

||**Patents**|**Product innovation**|**Process innovation**|
|---|---|---|---|
|**FirmCharacteristics**||||
|Export active|**0.34|0.21|0.08|
|Firm age (ln age)|0.02|0.00|0.02|
|Firm size (ln size)|0.07|0.10|0.01|
|**Collaboration with**<br>||||
|Universities|****0.35**|****0.30**|**0.20**|
|Consultants|-0.02|0.12|0.16|
|Suppliers|**0.09|**0.32|**0.35|
|Other firms|0.01|-0.02|0.06|
|**Absorptive capacity**||||
|Internal R&D department|**0.06|**0.19|0.12|
|**Human capital**||||
|Innovation related training|**0.09|**0.27|**0.23|
|Observations|4,570|4,570|4,570|
|Pseudo-R-square|0.22|0.30|0.37|

Note: ** Significant at 5% level. The three models are based on probit estimation of binary dependent variables. No sample selection bias is found using Heckman's two-stage method. The table is an extraction from the full models counting 25 explanatory variables including controls for economic sectors. Source: Mark et al. 2006 Despite potentially significant returns from collaboration, evidence suggests that linkages between universities and private companies are quite weak in Latin America. One of the reasons is low regard among entrepreneurs in the region for the quality of university education and research and lack of capacity among private companies to absorb knowledge. Yearly competitiveness surveys conducted by the International Institute for Management Development consistency show that universities in the region are perceived not to be sufficiently responsive to the needs of industry, emphasizing academics over commercial applications in their research orientation (IMD 2005).

A low level of university-industry collaboration is also evident in firm-level innovation surveys. Universities and public research institutes are among the least employed counterparts for private companies when it comes to innovation projects in Latin America. In Mexico, only 6 percent of 5