How does Confucian Dynamism influence National Innovativeness

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Chapter 3, HYPOTHESES DEVELOPMENT:

Based on the reviewed literature, I propose a theoretical model to link cultural long-term orientation and national innovativeness. This section is concerned with developing these links and proposing hypotheses to test it. Section 3.1 will discuss links between cultural-long-term orientation and national innovativeness through a nation's economic development, while section 3.2 discusses links through a nation's R&D effort.
3.1 Links relating to economic development:

Statistical evidence confirms a positive relationship between CD and growth rates of national economies (Franke et al., 1991). This suggests, national economies benefit from a cultural context in which strong work-ethics, thrift, respect for hierarchy and complementary relationships, a sense of shame, along with a proactive, future-orientated mentality are accepted. Furthermore, a mentality that preserves past and present realities through undue emphasis of traditions, reciprocations, and face-concern should be absent. For example, the recent success of the Chinese economy can be at least partly attributed to the cultural values of ist people. China has undergone rapid economic transformations throughout the past decades. These transformations cannot be realised through the work of a few corporate and government leaders alone, but require the support of the people at large. The Chinese nation, taking the top rank on the CD-dimension, shares a culture in acceptance of change and new realities combined with perseverance and strong work-ethics. These cultural values create individual mindsets in support of such rapid economic transformations.
Even though the direction of causality is not evident, it seems reasonable to assume that cultural values are not the consequences of economic development (although they may have been reinforced or discouraged by it). The Chinese were known to value thrift and perseverance long before their economy has experienced rapid growth. Furthermore, long-term orientated cultural values are also present in countries with developed economies such as Japan and South Korea (Nakata & Sivakumar, 1996; Wie-Ming, 1995). Therefore, in line with Hofstede and Bond (1988), this study assumes long-term orientated cultural values to be at least part of the cause, and economic development to be the consequence.
Idea-driven growth theory emphasises the importance of a nation's knowledge stock available to ist researchers and engineers for the production of new ideas. The realised knowledge stock of a nation should be reflected by ist economic development, because the state of a nation's economic development can be understood as the amount of knowledge and technology available and utilised. For example, the technology for the magnetic levitation train Transrapid© was invented by the two German firms Siemens and ThyssenKrupp. These companies have widely realised economic income from their knowledge through various Transrapid© projects in Germany and China. Therefore, economic development seems to be an appropriate proxy for the knowledge available to a nation's R&D sector for the production of new ideas (Furman et al., 2002).
A nation's economic development is also related to some of the factors suggested by the national innovation systems literature. For example, we know demanding local markets promote innovation. In a broad sample of countries, Porter (1998) finds evidence that the sophistication of local demand is largely explained by the degree of economic development. Therefore, economic development also can be used as a proxy the sophistication of local demand. Lastly, with a nation's economic development, financial development follows. It has been recognised long ago: 'Where enterprise leads, finance follows' (Patrick, 1966, p. 174). The same impulses that trigger entrepreneurial activity make owners of wealth venturesome. Therefore, economic development can also be used as a proxy for the availability of investment capital, a key requirement for innovative activities.
In summary of the above arguments, long-term orientated cultural values have a positive impact on the economic development of nations. Economic development, in turn, is related to major determinants of national innovativeness as suggested by idea-driven growth theory and national innovation systems literature. Therefore, I propose a link between cultural long-term orientation and innovativeness of a nation mediated through economic development. In order to test this link, this study develops the following hypotheses.

Hypothesis 1a: Long-term orientation positively relates to economic development

Hypothesis 1b: Economic development positively relates to national innovativeness

3.2 Links relating to R&D effort:

One important Confucian principle, thrift, posits not spending more than necessary. Another emphasises mutual obligations in relationships. Thrift leads to savings (Read, 1993), leaving firms with more internally generated funds to invest in R&D. Relationships based on a mutual sense of obligation facilitate long-term commitments between banks and firms. Such committed bank-firm relationships provide capital for activities with no calculable return such as the development of new products and technologies. Therefore, I argue that, independent from economic development, financial support for R&D activities in long-term orientated cultures is higher than in short-term orientated cultures. In an empirical study, Savignac (2008) has pointed out that the availability of investment capital is crucial for firms to conduct R&D. Furthermore, preparedness to commit resources to R&D is arguably influenced by national culture. Manager's with a more future-orientated mentality are more likely to recognise the long-term benefits of R&D. Schoenecker, Daellenbach, & McCarthy (1995) find in an empirical investigation of 145 firms that top management openness to innovation is a crucial determinant for firms' commitment to innovation. Yet another empirical study found, in response to declining profits, Japanese firms - dominated by long-term orientated cultural values - increase their R&D effort, while US firms - dominated by short-term cultural values - cease their R&D effort (Hundley, et al., 1996). Therefore, it can be argued whether and to which extent firms are willing and able to invest in R&D activities, relates to the time-orientation of their cultural context.
Furthermore, the literature indicates that long-term orientated cultures are better inventors than short-term orientated cultures (Herbig & Miller, 1992; Lin, 2009; Nakata & Sivakumar, 1996). This seems plausible in that persistence and making an extended effort are key attributes of inventors. Thomas Edison, who contributed largely to the invention of the light bulb, has pointed out: 'Genius is one percent inspiration, and ninety-nine percent perspiration' (Edison, 1903, spoken statement). Furthermore, social tolerance of new ways of thinking and experimenting encourages scientists and engineers in long-term orientated cultures to challenge the status quo rather than manifesting present ways of thinking. If it holds true that long-term orientated cultures have a comparative advantage in inventive activities, this should be observable in two ways. A nation's degree of cultural long-term orientation should relate to ist rate of innovation and; the amount of resources invested in R&D. This is reasonable, because a cultural location advantage in favour of inventive activities should lead to more resource allocations towards R&D from both indigenous and foreign firms (Dunning, 1988; Shane, 1992). In order to test these links, this study develops the following hypotheses.

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