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 and performance of firms in knowledge-intensive sectors in developing countries. We use the empirical data collected in 2005 and 2006 in the South African computer hardware and software sectors and the Malaysian computer hardware sector to illustrate the linkages between interactive learning and technological capabilities and how state support plays a critical role in enabling this in the case of knowledge-intensive industries. However, as the 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 informal institutional compensations that are important to them, and structure the idiosyncratic exchange processes of developing economies.