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QUESTION 1 1.a) Describe what is the difference betweeninnovation and invention. (6 points). 1.b) Describe the differenttypes of innovation usually identified by economic and businessstudies. (7 points). 1.c) Innovation has been frequently describedin formal mathematical models as a linear process. Do you agreewith this view? Articulate your answer by considering the majorproperties of the innovation process as discussed during theECON1165 module. (12 points). QUESTION 2 2.a) Provide a definitionof ‘technological capability’ and ‘social capability’ and describethe differences between them (5 points). Why can we say thatinnovation has a ‘systemic’ nature? (3 points). 2.b) Financialdevelopment, social capital, favourable business regulation, tradeopenness are different aspects of ‘social capability’ influencinginnovation processes and, therefore, economic development. Make aranking of these factors according to their observed degree ofimportance for economic development (3 points). Explain why‘inclusiveness’ and ‘equality in opportunities’ can strengthen theinnovation capability of an economy (5 points). 2 2.c) Figure 1below shows the cross-country correlation between the developmentof the education system and the level of economic development.Analyse Figure 1 by arguing about the importance of the educationsystem for economic development in low, emerging, and developedcountries (9 points). FIGURE 1: QUESTION 3 3.a) What areMultinational Companies (MNCs) and why it is said that they hold‘best practices’ and ‘state of the art’ technological andorganisational knowledge? (5 points). 3.b) Let’s assume that youare the manager of a local company in your own country aiming atsupplying goods and services to MNCs. What strategies would youintroduce in order to maximise the benefits of partnering with MNCsubsidiaries? Please explain fully. (7 points) 3.c) In a secondscenario, assume you are the manager of a domestic rival companyaiming at competing with MNCs. What processes and steps would youtake to compete and remain in the market? (6 points). 3.d) In athird scenario, you are a policy advisor of the national governmentin your country. What actions and policies would you implement inorder to create a facilitating environment for MNCs and to increasethe potential to gain technological knowledge? Why? (7 points). 3QUESTION 4 4.a) Global Value Chains (GVC) are managed by differenttypes of governance. Explain how the market-based governanceoperates and what the underlying learning mechanisms are. (5points) 4.b) How does the modular governance type work? Why mightthis type of governance be superior to the market-based one? (5points) 4.c) Argue in what circumstances the relational governancemight be more suitable than other types of governance. (5 points)4.d) What are the pre-conditions for a captive type of governanceto emerge? How does technological knowledge transfer occur in thiscase? (5 points) 4.e.) Analyse and explain the learning mechanismsput