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Innovation processes in emerging economies tend to differ from those in developed countries in that a larger share of firms absorb existing knowledge. The paper assesses how firms' absorptive capacity mediates the impact of global value chains on the innovation of handicraft exports in Yogyakarta, Indonesia. The study draws three conclusions. First, the incremental innovation of craft exporters demands specific but rather mundane absorptive capacities of firms, such as language abilities and capable departments. Second, and contrary to what might be expected, the study finds that the governance modes of global value chains do not significantly affect the level of innovation. Third, a group of traders have the highest level of innovation, the highest level of absorptive capacity, and they positively affect the innovation of suppliers. Overall, the findings show that knowledge diffusion is furthered within an emerging local innovation system. [ABSTRACT FROM AUTHOR]

This article studies the cross-border protection of intellectual property rights (IPR) as an outcome of a contract obtained through a Nash bargaining process between an innovative North and an imitative South. The level of disclosure required in such contract is higher, the more capable is the South in copying if bargaining breaks down. This raises questions about the suitability of universal IPR standards through a single contract. The threat of a penalty in case of noncompliance can, however, reduce the outside option of more advanced countries and make a stricter IPR regime enforceable by harmonizing their interests with relatively less developed nations. [ABSTRACT FROM AUTHOR]