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- Spillovers between firms are key to generating economic benefit according to some theories of economic growth.
- It is often thought interventions such as further investment and industrial policy are needed to reach the socially optimum amount of investment and overcome coordination failures. However, empirical evidence for technology spillovers is weak.
- Research by the IGC attempts to provide evidence for the presence or absence of spillovers by looking at soccer ball manufacturing firms in Sialkot, Pakistan.
- A new cutting technology was randomly introduced to a group of treatment firms, which reduced unit costs by about 2% by allowing manufacturers to reduce their raw material usage.
- The research then measured the extent to which this technology was adopted by nontreated firms which are connected to the treated firms.
- This project is still ongoing and thus, policy implications cannot be derived at this time.
- However, preliminary observations suggest that there does appear to be clear evidence of technology spillovers within manufacturing clusters.
- Furthermore, governments can potentially encourage innovation and technology upgrading by devising particular policies, such as providing innovation grants or subsidising consulting services.