Institutional support, innovation capabilities and exports: Evidence from the semiconductor industry in Taiwan Rajah Rasiah a, ⁎, Rafat Beigpoor Shahrivar a , Xiao-Shan Yap b a Department of Development Studies, University of Malaya, 50603 Kuala Lumpur, Malaysia b Department of Environmental Social Sciences, Swiss Federal Institute of Aquatic Science and Technology, Switzerland abstract article info Article history: Received 4 February 2014 Received in revised form 7 January 2016 Accepted 8 May 2016 Available online xxxx This paper examines the relationship between host-site institutional support, innovation capabilities and exports using data from a survey of 50 Taiwan semiconductor firms. The major questions asked in the paper are whether host-site institutional support is important in stimulating firm-level innovation capability, and whether the latter is important in firms' exports. An evolutionary perspective was used to measure innovation capabilities using knowledge embodied in machinery, training, processes and products. The statistical results show that innovation capability is correlated with institutional support. In addition, the findings also indicate that innovation capabil- ities (IC) enjoy a positive relationship with exports. The control variable of size had a positive effect in innovation capabilities and in exports, while human capital was critical in exports. The supply of R&D grants, R&D engineers and scientists, and support from universities and R&D labs has been viewed by firms as important in supporting innovation capability and semiconductor exports. © 2016 Elsevier Inc. All rights reserved. Keywords: Institutional support Innovation capabilities Exports Semiconductor firms Taiwan 1. Introduction The importance of institutional development in stimulating innova- tion was researched extensively by Veblen (1915) and Nelson (2008). Lall and Teubal (1998) and Lall (1994) had discussed the industrializa- tion experience of East Asian nations, which highlighted the importance of coordination between research and development (R&D), training, investment and product development for improved performance. Lundvall (1992) and Nelson (2008) emphasized that the embedding organizations and institutions actively advance the role of technologies in each industry. The most important achievements concerning the technological catch up of Taiwan are attributed to selective interventions to stimulate learning and innovation, but particularly participation in R&D activities (Amsden and Chu, 2003; Fransman, 1985; Wade, 1990). Government- support agencies, such as the Industrial and Technical Research Institute (ITRI) and the National Applied Research Laboratories (NARL) have had a significant impact in developing Taiwan's scientific and innovation base by supporting R&D activities in the private sector and exploring new technologies (China yearbook, 2012). These initiatives are a result of the policies of the Taiwan government, which laid the foundations for turning Taiwan into a global center for semiconductor foundries. Whereas the above anecdotal and interpretative evidence on the role of the state in stimulating innovation capabilities is obvious, this paper econometrically tests for the first time the relationship between host-site institutional support and firm-level technological in semicon- ductor firms in Taiwan to confirm the presence of strong correlation between the two. The use of Taiwan as a case is important as past works using this approach have focused only on countries still develop- ing (e.g. Figueiredo, 2008; Peerally and Cantwell, 2012; Rasiah, 2004). In doing so we get to examine the empirical data with firms at the globe's technology frontier. The paper analyzes empirically the data collected from a survey of 50 semiconductor firms. Former employees of the Electronics Research and Service Organization (ERSO) carried out this survey in 2013. The survey used a stratified sampling procedure based on size and functional specialization – chip implant (including R&D), chip design, wafer fabrication and assembly and test. As the firms were guaranteed confidentiality of the data set, we are not able to dis- cuss the issues by naming the firms. We did not use ownership because of the dominance of national firms in Taiwan. The cross-sectional anal- ysis undertaken in this paper does not allow the direction of causation to be established statistically. However, given that the government started the ITRI labs in 1974 and the early major IC firms engaged in high value added activities were started by the government, one can safely assume intuitively that host-site institutional support has caused, if any, technological upgrading in Taiwanese firms. The rest of the paper is organized as follows. Section 2 provides the justification for the study. Section 3 discusses the theoretical considerations. Section 4 presents the methodology and data. Technological Forecasting & Social Change xxx (2016) xxx–xxx ⁎ Corresponding author. E-mail addresses: rajah@um.edu.my (R. Rasiah), beigpours@um.edu.my (R.B. Shahrivar), xiaoshan.yap@eawag.ch (X.-S. Yap). TFS-18533; No of Pages 7 http://dx.doi.org/10.1016/j.techfore.2016.05.015 0040-1625/© 2016 Elsevier Inc. All rights reserved. Contents lists available at ScienceDirect Technological Forecasting & Social Change Please cite this article as: Rasiah, R., et al., Institutional support, innovation capabilities and exports: Evidence from the semiconductor industry in Taiwan, Technol. Forecast. Soc. Change (2016), http://dx.doi.org/10.1016/j.techfore.2016.05.015