CHAPTER 8
Fostering Innovation in Developing Economies through SEZs Justine White
Introduction Recognition is growing that technological innovation is central to economic growth and development both in high-income and developing countries (Aghion and Howitt 1998; Fagerberg, Srholec, and Verspagen 2009). Innovation should be understood as the implementation of new or improved products, processes, marketing, or organizational methods in business practices and workplace organization (OECD 2005). Importantly for developing countries, “new” is meant in a relative sense, insofar as innovation can be as much about applying existing global technologies that are new to the local context or bringing small improvements to existing technologies (incremental innovation) as it is about the creation of “new-to-the-world” innovations (radical innovations). Against this backdrop, FDI, trade, and innovation are likely to be closely intertwined and mutually beneficial for development. Indeed, trade and FDI represent an opportunity for less developed economies to access high(er) technology goods and services, as well as to become familiar with innovative processes and demanding markets. Since the 1990s, economic globalization (Bhagwati 2004) and, in particular, the lowering of transportation costs and the fragmentation of the production chain (Friedman 2005; Porter 1990; Saxenian 1999) have 183