The State and Innovation Policy in Late Development: Evidence from South Africa and Malaysia

This paper analyses the main institutional mechanisms that foster the emergence andperformance of firms in knowledge-intensive sectors in developing countries. We use theempirical data collected in 2005 and 2006 in the South African computer hardware andsoftware sectors and the Malaysian computer hardware sector to illustrate the linkagesbetween interactive learning and technological capabilities and how state support plays acritical role in enabling this in the case of knowledge intensive industries. However, asthe analysis in this paper shows, state support is not just implementing a set of policies that succeed elsewhere; it is the ability of the state to set up institutions that reflect a harmony between knowledge and physical infrastructure and the formal and informalinstitutional compensations that are important to, and structure the idiosyncratic exchangeprocesses of developing economies.