# **5.1 CHILE**

In Chile, from the sample of firms belonging to the manufacturing sector, 42 percent appear to be innovative, according to the definitions presented above. Of this 42 percent, 25 percent are innovative without investing in R&D, therefore there are factors other than pure investment in research that drive the firm’s innovative capacity. In this work we will try to measure the impact of these other factors and analyze the potential for non-R&D sources of TFP growth such as quality of management, human capital and communication systems for knowledge dissemination.

Data disaggregation shows that most R&D investment is in the Food industry, with 35 percent of total R&D expenditure, as shown in graph A.3.1. Following far behind there is the fabricated metal sector, and chemicals and rubber. As shown in the graph, there are sectors that are not investing in R&D at all, such as radio and television, or very little, as in tobacco, coal and fuel or medical. As reported in the Country Innovation Brief for Chile (World Bank), Chile has an innovative comparative advantage mainly in mining and agricultural and food processing equipment. This is reported after computing an index of “revealed comparative advantages”, based on sectoral patent data, whose value indicates, for a given sector, whether the country has a comparative advantage in innovation in that sector. Graph A.3.2 shows the index for the top innovative industrial sectors during 1983-2000 and for the period 1963-1980, which helps to assess whether the structure of innovation has changed in the country in the past decades. The evidence reported is only partly consistent with the firms’ R&D investment data collected from the survey. It appears in fact that recently only part of the R&D expenditure in the Food industry is converted into patents. While there is not always a strong correlation between investment in innovation and patent production (as mentioned above), it could be argued that targeted public policies designated to stimulate R&D in other sectors, which appear to have a stronger innovation comparative advantage, could be a fruitful avenue for future policy implementation in these areas.

As is the case for industrial sectors, there is also a significant bias from a geographical perspective. Firms with the highest expenditure in R&D are mainly located in the Metropolitan area of Santiago, the capital (see graph A.3.3). This is particularly interesting, if we consider that over recent years the interrelationships between technology, innovation and industrial location behavior have come to be seen as essential features of regional development. A common trend of research and policy thinking is to draw lessons from observations of particularly successful innovative region as a means of re-modeling both industrial and regional policy. In Chile, a recently completed study commissioned by the Government to Boston Consulting Group, analyses the most successful clusters in the region in order to extract models for industrial policy and investment that can produce the same positive results in less advanced regions of the country by adapting the model to local characteristics.

As shown in Graph A.3.4, more than 40 percent of the total expenditure in R&D is done in Chile by medium sized firms (with 50 to 250 employees), while big firms (more than 250 employees) make up just over 20% of total R&D. This is not necessarily surprising, in spite of the common view that big firms are more efficient in terms of performing innovation following R&D investment (since they are less constrained in terms of 12