substantially below trend with respect to the OECD countries and, again, this trend does not seem to have changed significantly in the recent years.

These low rates of investment are not due to low returns. Lederman and Maloney (2003) estimate that the country-wide economic returns to R&D in countries of Chile and Colombia’s levels are respectively 60 and 80 percent. Using the estimated return to physical capital, and the US long run return to stocks as high and low cases for the opportunity cost of investment, it is suggested that Chile should invest between 2 and 8 times more, and Colombia between 4 and 10 times more in R&D than they did in the 1990s. Since the average returns to R&D investments are higher in less developed than in high income countries, it is legitimate to wonder why they did not invest more in R&D.

The low level of innovation outcomes, on the output side, may arise from inefficiencies in the way in which existing innovation-related resources are utilized through the National Innovation System (NIS). One way of estimating the efficiency of a NIS is by examining how R&D investments translate into commercial patents and how the “elasticity” of patents with respect to R&D investments compares to the world average.<sup>9</sup> Graph 3 shows the elasticity or sensitivity of patents with respect to R&D in Chile and Colombia and several comparator countries. The negative value can be interpreted as an indication of the extent to which the two countries underperform in patenting efficiency relative to the OECD average.

Another indicator of the weakness in the capacity of private firms to innovate and commercialize research is given by the discrepancy between R&D expenditures in the private and public sectors. If we draw a comparison with the OECD countries, we see that in the OECD, private firms finance two-thirds of the R&D expenses while in Chile the private sector finances only one-third of the R&D expenses. In Colombia the picture is similar, with only 7 out of 100 firms investing in R&D and a total of investments that reaches only 0.1% of GDP. According to a global survey of business executives, publicprivate collaboration in Chile and Colombia is rated respectively 3.2 and 3.5 on a 7 point scale<sup>10</sup> . This is well below that in high-income countries, where the average rating is 4.1. The main obstacles to this collaboration seem to be lack of trust, different working cultures and different motives of collaboration.

For the case of LAC as a whole, econometric exercises described in Bosch et al. (2003) show that the region’s inefficiency can be explained by the lack of collaboration between the private sector and research organizations such as universities. Colombia and Chile seem to be as inefficient as the average LAC country. In a recent paper Benavente et al. (2005) state that Chile’s low innovation performance compared to OECD standards and even in relation to countries with comparable levels of income has to be related to the low private R&D spending, fragmented innovation policy and lack of skilled workers and researchers. These are obstacles to innovation activities in spite of the presence of many macroeconomic framework conditions that could boost them.

> 9 Bosch et al. (2003) discuss in detail how these elasticities are estimated and how they vary across regions of the world.

> 10 Global Competitiveness Report (2005).

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