in addition to domestic R&D, openness to foreign knowledge plays a big part in domestic innovation, a point that was also made in Section II above.

Recent World Bank research by Bosch, Lederman and Maloney (2005) appears to be a rare study that looks at the relationship between patenting and R&D worldwide, including developing economies. The study finds a significant relationship between patenting and R&D at the global level, although the estimated elasticity of patenting with respect to R&D for OECD economies (around 1) is substantially higher than among developing economies. The lower productivity of R&D spending in developing economies appears to be due to weaknesses in their national innovation systems. In particular the study finds that R&D productivity has a significant positive relationship with years of education, the quality of academic institutions, the quality of intellectual property rights and the level of collaboration between research institutions and the private sector, all factors which on average are substantially lower among developing than OECD economies. Among these factors, years of education and intellectual property rights appear to have the most significant impact on R&D efficiency.

# **_In which technologies is East Asia innovating?_**

Is patenting in East Asia broadly diversified or concentrated in particular sectors? The USPTO classifies patents into one of around 480 technology classes. Exhibit 11 shows adjusted Herfindahl indexes of concentration across these technology classes for several major Pacific Rim economies. An index level of 1 means concentration in just one technology, while (in this case) an index of around 0.002 would mean equal distribution across all classes. The exhibit suggests that patenting in East Asian economies is considerably less diversified than in mature developed economies like Japan and the US.

<mark>Jaffe and Trajtenberg (1999) distill the lengthy list of USPTO patent classes into 6 broad groups: chemicals, computers and communications, drugs and medical, electrical and electronic, mechanical and all other. A major area of concentration in East Asia is electrical and electronics. The median share of patenting in this technology area for seven East Asian economies in 200204 is 38 percent, ranging from a low of 25 percent in Hong Kong to 45-50 percent in Taiwan (China) and Singapore. The second most important area of concentration is computers and communications, with a median East Asian share of 15 percent, ranging from a low of 12 percent for China and Malaysia to 25-30 percent for Korea and Singapore. The share of East Asian patenting in these two areas has generally risen since the early 1990s.</mark> In part the high concentration of East Asian patenting in these sectors just reflects the high technological opportunity and propensity to patent in these sectors worldwide. But East Asian patenting in electrical and electronics (in particular) is also high relative to the world average share of patenting in this sector - in other words East Asian Revealed Comparative Advantage (RCA) indexes in this sector are generally substantially greater than one, reflecting world class levels of sophistication in specific areas of specialization, for example Korea in DRAM technology and LCD manufacture, or Taiwan (China) in the wafer foundry industry, testing and packaging services. By comparison most East Asian economies show a distinct revealed comparative disadvantage in the drugs and medical sector. (Exhibit 12).

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