As we will be using the disaggregated measures of technological innovation that underline the TAI index in our equations as well as the index as a whole, some additional information on how the index is composed is necessary. At a national level, the creation of a technology index represents part of the potential capacity to innovate. This index is constructed using two indicators to capture the level of technological innovation in a country. The first is the number of patents granted to residents, which reflects the current level of invention activities. The second indicator is receipts of royalty and license fees from abroad, which indicates the stock of successful innovations made in the past that are still useful. Two additional indicators measure the diffusion of old innovations or the national technological innovation assimilation level, namely number of telephones (mainline and cellular combined) and electricity consumption. These indicators are important since both are needed to use new technologies and basic related activities. Electricity consumption is also considered a proxy for the use of machinery and equipment since most of it is run by electric power (UNDP, 2001).12 Both the creation of technology and diffusion of old innovations indices are used here as proxies of potential absorptive capacity.