Introduction

In neoclassical trade theory the so-called primary factors of production, capital and labour, are treated as strictly national assets, assumed not to cross national borders. Technology, on the other hand, is assumed to be a transnational resource, moving freely across borders. The only fundamental difference between national systems is the difference in factor proportions, and export and import specialisation reflects nothing but such differences.

One way to restate this model would be to propose a more restricted mobility of technology, and to treat investments in R&D on par with investments in factories and machinery. However, the national system of innovation would still be of very limited analytical interest in this extended model. The only new variables to be considered would be the stock and the rate of investment in R&D.

The National System of Innovation and the Fundamental Neoclassical Assumptions

In order to see, why the national system of innovation is a useful analytical concept, a more radical revision of basic neoclassical assumptions is necessary. In a world where agents are perfectly rational (maximisers of utility and profit, with unlimited access to information, and an unlimited capacity to gather and process information) and where all transactions take place in pure markets, with anonymous relationships between buyers and sellers, national borders play a limited economic role. In such a world, it is legitimate to assume that institutional and cultural differences between nations do not to interfere with economic processes.