| Summary: | This study traces the development of innovative capacity in the three transition economies Estonia, Latvia, and Lithuania since their independence from the USSR. Using three different techniques, it explores the mechanisms of national competence-building and how this is influenced by the interaction of different economic agents, both foreign and domestic. The first part of the project concerns itself with developing an econometric model to test factors such as FDI, market attractiveness, geographic distance and innovative capacity of the major investing countries for their influence on knowledge inflows over time (proxied by patent application in the Baltics originating abroad). Its aim is to explore what actually attracts knowledge into a country/ a system, thus acting as a counterbalance to the second part, which focuses on the mechanisms inside the host economy, while taking knowledge inflows as an independent variable. The second part of the research analyses patenting dynamics in and around the Baltic States, drawing on an extensive patent database compiled from different sources, such as the EPO’s, WIPO’s, and national patent information sources. Knowledge flows into the Baltic host countries, knowledge generation within them, and the dissemination of internationally competitive innovations in the form of international patents coming from the three countries are put in context with an analysis of the institutional base of innovative activity in order to gain an overview of the structure and the patterns of developing innovative capacity. Furthermore, indices of relative technological specialisation were constructed for the Baltic States’ patenting as well as for those countries that represent their largest foreign investors to assess the influence multinational enterprises exact on the formation of national innovation systems. A third part of the study tackles possible innovation systems themselves by identifying spillovers through patent citation analysis, among other things. Focusing on international patents that originate in the Baltic States, which represent cutting-edge innovation with a greater chance for commercial success, interactions between applicants are monitored in order to identify central players in the countries’ innovative activities. The contributions to knowledge of this study are threefold: firstly, the theory of the Investment Development Path is applied to transition economies; secondly, proximity as a determinant of FDI and knowledge transfer is incorporated into and analysed within the existing theoretical framework; and thirdly, intangible assets are included into the IDP.
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