economic development 2013.05.24

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Economic Development <Lecture Note 7> 2013.05.24

ED: Technological Catch-up* Some parts of this note are borrowed from some of the references for teaching

purpose only.

Semester: Spring 2013 Time: Friday 9:00~12:00 am Class Room: No. 322 Professor: Yoo Soo Hong Office Hour: By appointment Mobile: 010-4001-8060 E-mail: [email protected] Home P.: //yoosoohong.weebly.com

mailto:[email protected]

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Definition of Technology

o Technology is the knowledge useful for production of goods and services.

Importance of Technology

o The history of human being is the history of knowledge (science and technology).

o Technology and productivity are the main engines of economic growth.

o Technology is the main determinant of competitiveness.

o Technology affects welfare of individuals and the society.

Technology and Development

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Stages of Industrial Development in the World

Agricultural Economy

IndustrialEconomy

Knowledge-based/InnovativeEconomy

• Land• Labor• Natural

Resources

• Capital• Labor• Management

• Science & Technology• Innovation• Entrepreneurship

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Technology and Development

Social Infrastructure, Culture And Institutions

Economic Growth

Technology Development

Resources for education, health, communication,Employment

Resources for technologydevelopment

Productivitygains

Advances in medicine,communications, agriculture,energy,Manufacturing, etc.

Knowledge,creativity

Source: UNDP. 2001

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Two Patterns (Stages) of Economic Growth o Extensive Growth - Increasing production by increasing input of production factors o Intensive Growth - Increasing production by productivity increase (More production is possible with the same resources.)

Technology, Productivity and Economic Growth

Technology → Productivity → Trade and Industry → Economic Growth

Technology and Economic Development

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Technology and Economic Growth

Creation of Technology

Investment in Technology

Innovation

Increase in ProductivityStrengthening International CompetitivenessIncreasing Trade

Economic Growth

First Stage

Second Stage

Virtuous Circle (Increase sin Income, Demand, Investment, etc.)

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120

100

80

60

40

20

0

- Technological innovation plays a key role in productivity increase, long-term economic growth and enhancing living standards. (Innovation is the engine of growth.)

Innovation Capability

0 20 40 60 80 100 120

◆ China

Italy ◆ ◆ Mexico

Korea ◆

◆ Japan

◆Taiwan

◆ German

France◆

◆ Canada

◆ England

◆ USA

Innovation and Economic PerformanceR

elat

ive

Econ

omic

Per

form

ance

Note: As of 2000.

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Two different Development Stages

Extensive Growth:Input-driven growth

Intensive Growth:Innovation (productivity)-driven Growth

- Increase in inputs (e.g. employment, education level, stock of physical capital: mobilization of resources)

- Increase in the output per unit of input (e.g. better management, better economic policy, increase in knowledge, technological progress)

- Diminishing returns - Constant returns

- Limited Growth - Sustained growth

- Based on perspiration - Based on inspiration

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Sources of Economic Growth in Asia

Note: TFP= Total Factor Productivity Source: Japan Economic Research Center(1999)

(%)

PeriodGrowth Rate Factor Contribution

GDP Labor Capital Tech-nology Labor Capital TFP

Korea 1972~96 8.6 3.0 9.0 2.0 14 63 23

Taiwan 1972~96 8.0 2.6 10.1 0.9 13 75 11

Thailand 1972~96 7.6 2.7 9.0 1.2 14 70 15

Malaysia 1972~96 7.4 3.5 11.3 -0.8 19 92 -11

Indonesia 1978~96 6.8 2.9 8.7 0.4 n.a. n.a. n.a.

Philippines 1980~96 2.3 3.2 2.4 -0.4 54 62 -16

China 1980~96 10.1 2.8 10.8 2.4 11 65 24

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Technology Divide

- A small number of industrialized countries provide practically all the world’s technology innovation.

- Some developing countries are able to adopt these technolo-gies in production and consumption.

- The remaining part is technologically disconnected, neither in-novating nor adopting foreign technologies.

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Barriers to Technology Transfer

- Lack of access to information on new technologies and innovations.- Inadequate institutional infrastructure, management and marketing human

skills.- Organizational rigidities within the firms themselves.- Limited access to finances.- Regulatory constraints.- Inefficient R&D institutes and disconnection from needs of industry.- Inadequate human resources and mechanism for their upgrading.- Lack of resources, knowledge and capabilities within policy institutions.- Low efficacy of government support schemes.

Technological Change

– Development consists primarily in employing existing resources in a differ-ent way, in doing new things with them, irrespective of whether those re-sources increase or not. (Joseph Schumpeter)

– Technological change is a key element in increasing productivity and output. There are seven elements or ingredients associated with contemporary technological change.

• Technical Efficiency• Factor Intensity• Elasticity of Factor Substitution• Scale of Production• New Products• Social Relations of Production• Speed of Change

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– Increases in technical change are recognized and usually accompanied by changes in factor intensity, reductions in the elasticity of factor substitution, increases in scale, shifts in products, changes in the social relations of pro-duction, and increases in the speed of change itself.

– Diffusion of technological change takes time and involves costs, because of its complexity. The nature of technology appropriate to the development process differs from that elaborated abroad because of the different costs and prices present in rich and poor countries.

– An appropriate or intermediate technology is likely to combine labor inten-sity with other characteristics that differ form the most advanced technolo-gies of the affluent countries.

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Knowledge Economy

Why knowledge now?

- “Throughout history, relative economic performance has been closely associ-ated with the capacity of countries to participate in successive technology/knowledge revolutions (agriculture, manufacturing, services, knowledge soci-eties)”;

- “Knowledge has played a critical role in differentiating the long run economic performance of countries”;

- “In the last 50 years, economic growth has been closely associated with ur-banization, emergence of new organizational forms, and regional and global trade—all these trends, in turn, are closely linked to agglomeration of people and ideas”

Concept of KBE or KE

- An economy where creation, circulation (dissemination) and utilization of knowledge is the core (engine) of growth. (OECD)

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Percentage share of the global GDP (0-1998)

0

5

10

15

20

25

30

35

40

Western Europe United States Japan China

Major Economies and Weights in the World

16

0

2

4

6

8

10

12

14

1960 1965 1970 1975 1980 1985 1990 1995 2000

K n o w le d g e m a k e s th e D if fe re n c e K n o w le d g e m a k e s th e D if fe r e n c e b e tw e e n P o v e r ty a n d W e a lth . . .b e tw e e n P o v e r ty a n d W e a lth . . .

R e p . o f K o r e a

G h a n a

T h o u s a n d s o f c o n s ta n t 1 9 9 5 U S d o lla rs

D if fe re n c e a t t r ib u te d to k n o w le d g e

D if fe re n c e d u e to p h y s ic a l a n d h u m a n c a p ita l

Knowledge Gap and Wealth of Nations

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Emerging Knowledge Economy

Facts about Knowledge Revolution:

Increased generation/codification of knowledge (e.g., patents granted in the US: from 49,971 in 1963 to 175,983 in 2000) Closer links with science base/increased rate of innovation/shorter product life cycles

Increased importance of education, up-skilling of labor force, and life long learning

Growing investment in intangibles (R&D, education, brands…) – OECD countries spend more than $520 billion per year in R&D

Value added increasingly associated with investment in intangibles such as branding, marketing, logistics/information management

Innovation and productivity increase more important in competitiveness and GDP growth

Increased Globalization and Competition

Constant change and competition implies the need of constant restructuring and upgrading: the ability to create, access and use knowledge is becoming the fundamental determinant of global competitiveness.

Innovation

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20

Strong Correlation: GDP/Capita and KEI

Source: KAMAfrica GDP/capita = $2624

Regression KEI 2002 and GDP per capita 2002

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00

Knowledge Economy Index 2002

GD

P pe

r cap

ita 2

002

(199

5 co

nsta

nt U

S$20

02)

R2 = 0.66Finland

Brazil

ChinaIndia

Korea

RussiaJordan

Ireland

Poland

South Africa

Ethiopia Ghana

Turkey

USA

UK

Slovenia

Taiwan

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Global economy is changing the landscape of economies in the world

- Knowledge has increasingly become an important means for value cre-ation.

- The knowledge content of goods and services is increasing as manu-facturing is “dematerializing” and economies are becoming “weightless”.

- Globalization and the ICT revolution are emerging in the modalities of creating value.

The Importance of KBE

- Knowledge-based economies is a global trend.

- Entering the intensive growth stage, innovation and knowledge econ-omy are the engine of growth and development.

Importance of Knowledge-Based Economy (KBE)

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Especially, governments in Asia are facilitating and creating opportunities to-ward a more knowledge-based economy and society.

Four pillars of a KBE - Education, including building a skilled workforce

- National innovation systems, including science and technology, R&D

- Building networks, including ICT infrastructure and social networks

- Policy and regulatory (business) environment

New paradigms for managers and policy makers

- Distinction between knowledge and information

- Recognizing and managing intangibles - Attention to tacit knowledge - Stakeholder capital in a networked economy and society

- Value-driven development

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The Four Pillars of the Knowledge Economy

Education

Innovation SystemsInformation Infrastruc-ture

InterconnectedInterdependent

Biz Environment and Institutional Regime

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Asian governments envision and plan for a mix of KBE

- Thailand’s IT2010: “good use of ICT”

- e-Korea Vision 2006: “quantitative expansion of the Internet”

- e-Japan strategy: “knowledge-emergent society”

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Knowledge-Based Economy Indicators for the Asian Region

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Knowledge-Based Development

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Education and the skilled workforce - Skills required in a KBE such as communication skill, critical thinking and

problem solving, sustainable use of resources, development of self and a sense of community, expanding world vision

- New teaching and learning strategies

- Diaspora (migration of workforce) is critical issue and Asian countries face the issue of retaining the skilled workers. “Brain drain” can be “Brain gain” which raises the skill level of the home country.

The Four Pillars of a Knowledge-Based Economy

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National innovation systems (NIS) - “A subsystem of the national economy in which various organiza-

tions and institutions interact and influence each other in the carry-ing out of innovative activity.”

- Innovation and improvement in technical capacity are the result of a complex set of relationships among actors creating, acquiring, dis-seminating, and applying various kinds of knowledge.

- Actors are private enterprises, universities and public research insti-tutions, relevant financial institutions, and the government.

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Building Networks - Capacity of ICT to support the development of networks and to establish and

maintain connections among individuals, groups, and organizations is con-sidered to be of great use of and value to others.

- Benefits of ICT and Networks (The ICT revolution has fast-tracked the inno-vation process)

- Toward an ubiquitous network society (social computing of voicemail, e-mail, online chats, and collaborative applications)

- Elements needed in building ICT are an appropriate regulatory framework, readiness and availability of human resources, research and education of IT skills.

Setting the policy and regulatory environments - Policy: legislation, organization/reorganization, and regulations - Planning: formulation of vision, strategy, and road map - Infrastructure and programs: establishing and implementing the needed

physical, institutional, and social infrastructure and programs

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ICT holds major opportunities

for development

Business connectivity• Access to international

information for small and large business

• Logistic support; e-com

Health• Preventive health care• Curative health care

Less isolation in remote and poor areas• Community communication

centers• Wireless technologies

Government• Electronic payments

systems• Electronic government

(tax, customs)• Land titling, registries• Access to information,

democratization

Environmental and naturalresource management• Teledetection• Computerized databases• Ecologically-balanced

agricultural management

Financial sector• International payment

systems• Bulk and high value

transaction systems

ICT and Opportunities for Development

Education• Basic• Higher• Professional

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Country Year Spending as a share of GDP (%)

Sweden 1997 3.85Japan 1998 3.00Korea 1997 2.89United States 1997 2.60Netherlands 1996 2.09Taiwan, China 1997 1.92United Kingdom 1998 1.60Singapore 1997 1.47Chinaa 1997 0.65Indonesia 1995 0.50Thailandb 2001 0.16

Note: a) Includes non-defense R&D spending only b) World Bank 2002eSource: National Science Foundation (2000, 2002)

R&D Spending as a Percentage of GDP, Late 1990s

Gross Expenditures on R&D in PPP by Country and as Percentage of Global Expenditures 2010

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The R&D Input Landscape

34

35

Global Distribution of R&D Expenditures (1997)

Source: World Bank SIMA Database, 2002

Low income 0.8 %

Lower middle income 2.4 %

Upper middle income 4.1 %

High income 92.7 %

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Global Distribution of Patenting (registered in the U.S., 2001)

Source: US Patent & Trademark Office (USPTO), 2001

High income 99.2 %

Low income 0.1 %

Lower middle income 0.4 %Upper middle

income 0.4 %

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Royalty and License Fees, Payments, and Receipts (BoP, current US$, Millions)

3484

62311

5861

70862

2311997

134253 148

150219

125 2183

0 50

10000

20000

30000

40000

50000

60000

70000

80000

payments 1975 payments 2001 receipts 1975 receipts 2001

Source: World Bank SIMA Database

High income Low incomeLower middle income

Upper middle income

0.05

38Source: World Economic Forum, The Global Information Technology Report 2002-2003

Network Readiness Index(rankings of 82 countries, 02/03)

Networked Readiness Index Rank

Market, Regulatory and Infrastructure Environments

Individual, Business and Government

Usages

Individual, Business and Government

ReadinessFinland 1 2 1 2United States 2 1 4 3Singapore 3 8 2 1Sweden 4 6 3 4Korea 14 26 8 12Brazil 29 32 26 33South Africa 36 38 35 44India 37 34 43 40Thailand 41 40 47 36China 43 51 51 35Mexico 47 60 37 52Dominican Republic 57 46 63 53Trinidad and Tobago 58 50 62 58Colombia 59 50 58 61Jamaica 60 62 66 50Venezuela 66 63 50 72Russia 69 68 78 60Bolivia 78 75 76 79Honduras 81 80 79 78Haiti 82 82 80 82

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Public Spending on Education (% of GDP)

Source: World Economic Forum, The Global Information Technology Report 2002-2003

Public Spending on Education as a percentage of GDP

0 1 2 3 4 5 6 7 8 9

Dominican Republic

China

India

Singapore

Trinidad and Tobago

Colombia

Russia

Honduras

Korea

Mexico

Brazil

Thailand

Venezuela

Bolivia

United States

Haiti

South Africa

Jamaica

Finland

Sweden

MEAN: 4.74


Availability of Scientists and Engineers

0 1 2 3 4 5 6 7

Haiti

Bolivia

Honduras

Mexico

Dominican Republic

Jamaica

South Africa

China

Venezuela

Thailand

Colombia

Trinidad and Tobago

Brazil

Russia

Korea

Singapore

Sweden

United States

Finland

India

MEAN: 4.88

1=non existent or rare; 7=widely available


Brain Drain

1= normally leave to pursue opportunities in other countries, 7= almost always remain in the country

0 1 2 3 4 5 6 7

Haiti

Bolivia

Jamaica

Colombia

South Africa

Venezuela

Honduras

India

Mexico

Dominican Republic

Russia

China

Trinidad and Tobago

Korea

Thailand

Sweden

Brazil

Singapore

Finland

United StatesMEAN: 3.76

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MEAN:3.8

Source: World Economic Forum, The Global Information Technology Report 2002-2003

Public Access to the Internet

1= very limited; 7= most people have frequent Internet access

0 1 2 3 4 5 6 7

Russia

Jamaica

China

Dominican Republic

South Africa

Mexico

Brazil

Venezuela

Haiti

Trinidad and Tobago

Thailand

Colombia

India

Bolivia

United States

Korea

Singapore

Sweden

Finland

MEAN: 3.82


Number of Internet Users (per 100 people)

Number of Internet accounts per 100 people

0.00 50.00 100.00 150.00 200.00 250.00

India

Bolivia

Russia

Haiti

Honduras

China

Dominican Republic

Colombia

Brazil

Venezuela

Mexico

Jamaica

South Africa

Thailand

Trinidad and Tobago

United States

Finland

Sweden

Korea

Singapore

MEAN: 38.44

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Lessons from Country Experiences

Asian governments envision and plan for a mix of KBE

- Thailand’s IT2010: “good use of ICT”

- e-Korea Vision 2006: “quantitative expansion of the Internet”

- e-Japan strategy: “knowledge-emergent society”

Lessons

Strong leadership and political will

Clear policy direction and adequate support for implementation

Strengthening linkages with the private sector

Exploring innovative ways of achieving desired outcomes

Use of ICT for marginalized groups - Farmers, poor communities, underprivileged sectors have been provided online support. - Rural kiosks in India, Cybercare in Malaysia, Promotion local products in Thailand, IT education

in ROK

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Knowledge can make a critical difference in the development process.

The risks of a growing knowledge divide, require special attention from policy-mak-ers. In this context, one needs to focus on:

- The importance of an effective institutional and economic regime that fosters the creation, dissemination and use of knowledge;

- Investments in education so that the population can use knowledge effectively;

- The operation of the innovation system (involving R&D centers, universities, li-braries, private firms, etc.);

- The implementation of a dynamic ICT infrastructure that fosters information dis-semination, transparency and digital literacy.

Policy Implications

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In the process of knowledge generation, dissemination and use in a networked environment, special attention needs to be given to:

- The balance between protection of intellectual property rights and the preservation of fair use and access to resources in the “commons”;

- The challenges of promoting digital literacy;

- The potential of public-private partnerships;- - The growing demand for transparency;- - The importance of context/localization; and- The role of leadership.

Increasing globalization: reduction of transportation and communication costs, increasing global information, increasingly mobile FDI.

Rapid pace of technological change and innovation: Half life of technology is getting shorter. Keep up or fall behind – these are the only options

Increasing competition: driven by trade liberalization and increasingly larger players (e.g., China, Korea, India) plus laggards that want to catch up – Viet-nam, Mozambique, Rwanda

Networking and disintegration of production

There is No Choice “The world is moving fast…with or without you!”

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Stages of Economic Development

48

Factor-driven Economy

Investment- driven Economy

Innovation- driven Economy

• Basic factor conditions (low cost labor, natural re-sources, geographic loca-tion) are the dominant sources of competitive advantage

• Technology is assimilated through imports, FDI and imitation

• Companies have limited roles in the value chain, and focus on assembly, labor intensive manufac-turing, and resource ex-traction

• The economy is highly sensitive to world eco-nomic cycles, commodity prices, and exchange rates

• Innovative products and services at the global technology frontier are the dominant sources of competitive advantage

• Characterized by strengths in all areas to-gether with the presence of deep clusters

• Companies compete with unique strategies that are often global in scope

• The economy has a high service share, and is re-silient to external shocks

• Efficiency in producing standard products and services is the dominant source of competitive ad-vantage

• Foreign technology is ac-cessed through licensing, joint ventures, FDI, and imitation

• The nation is not only as-similating foreign tech-nology, but has the capac-ity to improve on it

• Heavy investment is made in efficient infrastructure, modern production process, and ease of do-ing business

Source: Porter, Michael E. Competitive Advantage of Nations, 1990.

STAGE ONESimple manu-fact-uring un-der forei-gn guidance

STAGE TWOHave support-ing industries, but st-ill under foreign guid-

ance

STAGE THREEManagement &

te-chnology mastere-d, can produce hig-h quality goods

STAGE FOURFull capability in in-novation and pro-duct design

as glo-bal leader

Vietnam Thailand, MalaysiaChina-1

Korea, Taiwan,China-2

Japan, US, EU

Agglomeration (acceleration of

FDI)

Creativity

Border to Middle Income Economies

Stages of Catching-up Industrialization

Initial FDI absorption

Internalizing parts and

components

Technology absorption

Internalizing skills and technology

Internalizing innovation

STAGE ZEROMonoculture, sub-sistence

agriculture, aid depende-ncy

Pre-industrialization

Arrival of manufacturing

FDI

Poor countries in Africa

49Source: Kenichi Ohno. 2009

Catch-Up Oriented Industrial Technological Capabilities in Developing Countries

Accelerate Enhancement

Aim for Independent Innovation

Firm-Level National-Project-Level Take Leaders

as Reference

In-dus-try-Level

Coordinated Development of System

CapabilityEnhance-

ment

ExternalSupports InternalEfforts

CapabilityEnhance-ment

IndependentDevelopment

Closing toAdvanced Level

Capability Enhancement

Core Technologies, Advanced Technologies…

Industry Planning, Policy, Effects

Source: Hong, Su, Lu 50

S&T Capacity Building-Actors

National Policy Making • Fundacion Chile, MOST,• Technology diffusion institutions• Technology Foresight

S&T Capacities in Universities and R&D Institutes

• R&D vs. ERC• Centers of Excellence

Enterprises • In-house research• Supplier development• Innovation capacity improvement

Labor Force • Vocational training, secondary ed.• Skills Development Centers• Life-long learning

Education Sector • Primary education• Secondary education• Higher education

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S&T Capacity Building-Institutions

Scientific research Technology adoption, adaptation, and diffusion

Supply• MSI Centers of Excellence• Instrumentation Centers• Higher Education projects/ESW

• Engineering Research Centers• Technology Transfer and Diffusion Institutes

Demand • Tax incentives for in-house research • Industrial labs • Grant programs for industrial research

• Modernization of industrial firms• Agriculture technology projects• Industrial credit lines

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Acquisition

Assimilation

Improvement

Creation

Capacity Building Stages and Model

DevelopingCountry

Newly-IndustrializingCountry

AdvancedCountry

Imitation internalization generatingS&T & R&D Stages

DevelopmentStages

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Royalties and License Fees (Annual, 2000-2008)

YEAR 2000 2001 2002 2003 2004 2005 2006 2007 2008ECONOMYChina 0.26 0.33 0.33 0.23 0.38 0.21 0.22 0.28 0.39

China, Hong Kong SAR 0.26 0.48 0.51 0.73 0.4 0.38 0.36 0.42 0.41Germ any 3.5 3.75 3.76 3.65 3.78 4.36 3.65 3.64 4.06

Indonesia _ _ _ .. 1.84 2.04 0.12 0.25 0.18Japan 14.77 16.22 15.86 15.81 16.09 16.02 17.13 17.99 17.28

Korea, Republic of 2.25 3.18 2.94 3.98 4.44 4.23 4.1 2.74 3.13

Philippines 0.21 0.03 0.03 0.12 0.3 0.13 0.09 0.05 ..Singapore 0.3 0.64 0.69 0.54 1.06 1.17 1 1.02 1.01Source : UNCTAD, UNCTADstat

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Levels of Innovation

Frontier Innovation

Technology Improvement and Monitoring

Significant Adaptation

Basic Production–use technology

55

R&D

Design &Engineering

Technician & CraftSkills & Capabilities

Basic OperatorsSkills and Capabilities

ScienceDevelopmentand Creation

ScienceUse, Operation

and Maintenance

-These all need human capacity.56

Levels of S&T Capacity Building

Disparities in STI

Africa你 Country Share of World (%)

1 South Africa 0.37

2 Egypt 0.26

3 Tunisia 0.11

4 Morocco 0.09

5 Nigeria 0.08

6 Algeria 0.08

7 Kenya 0.05

8 Cameroon 0.03

9 Tanzania 0.03

10 Ethiopia 0.03

11 Uganda 0.02

12 Ghana 0.02

13 Senegal 0.02

14 Zimbabwe 0.02

Rest of Africa (39 c.) 0.16

Total Africa 1.37

Source: Hassan, H.A., Mohamed from SCI, January 2007

-African countries contributing ≥0.02% of world share of ISI-listed S&E papers.

57

Science Technology and Innovation

Science is the process of generating knowledge based on evidence. While it implicitly includes both natural sciences (biology, chemistry, physics, mathe-matics and related disciplines) and social sciences (economics, sociology, anthropology, politics, law), we will focus in this book largely on natural sci-ence disciplines.

Technology is the application of scientific knowledge, and frequently in-volves invention, i.e, the creation of a novel object, process or technique.

Innovation is the process by which inventions are produced, which may in-volve the bringing together of new ideas and technology, or finding novel ap-plications of existing technologies. Generally, innovation means developing new ways of doing things in a place or by people where they have not been used before. Modern innovation is usually stimulated by innovation systems and pathways.

The phrase ‘Science and Innovation’ in this book implicitly includes sci-ence, engineering, technology and the production systems which deliver them.

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ICT coverage in Africa and Other Regions (2000-2005)

Personal com-puters (per 1,000 people)

Internet users (thousands)

Telephone lines(per 1,000 peo-ple)

Mobile phone subscribers (per 1,000 peo-ple)

Household with TV (%)

World130 781,755 180 342 79.2

High income579 355,830 503 835 96.8

Low & middle income 40 425,925 135 247 48.4

Sub-Saharan Africa 15 19,066 17 125 13.9

East Asia & Pacific 38 156,422 214 282 36.4

Latin America & Caribbean 88 85,317 177 438 87.0

Source: Ansu, Yaw, 2007 from World Development Indicator 200559

Five Dimensions of STI Capacity

National (and local)government capacity to formulate and implement coherentS&T programs and policies

Enterprise capacity toutilize knowledge to innovate and producehigher value added,globally competitivegoods and services

Technologically andscientifically skilledworkforce trained to equipment andproduction processes

Production of newknowledge via R&D

Import, adapt, andadopt knowledgeproduced outside thecountry

Source: Ansu, Yaw, 2007 60

Observations and Lessons

- Ability to produce new knowledge (R&D) is important, but the ability to absorb and utilize existing knowledge may be even more important at early stages of de-velopment – National systems of economic learning and technology diffusion.

- Absorptive capacity of enterprises and labor force must be developed – spillovers (from FDI) are not automatic.

- S&T capacity building policies should be devised within the context of an overall industrial development strategy – not separately

- Getting basics right-rule of law, business climate, etc. - is absolutely necessary but not sufficient.

- Goal of universal primary education should be complemented by expanded access to vocational, secondary and tertiary education.

- Political commitment is needed since it takes a long time for capacity building to affect economic development and poverty.

61

- A critical challenge is increasing the effective demand for R&D by develop-ing enterprise capacity to innovate and utilize knowledge.

- Tension between expanding the supply of skilled workers and the private sector’s demand for skilled workers-chicken and egg / brain drain vs. skill shortage

- How firms learn, from whom, and how they innovate is a key issue.

- Freer trade and attracting FDI is necessary but not sufficient – spillovers will not occur without accompanying capacity building efforts.

- Increased spending on education and/or R&D will not improve economic performance, if there are poor linkages between research institutes and education sector on the one hand and enterprise sector on the other. Linkages, quality and relevance are critical.

- Need for focus and realism – don’t spread resources too thin; develop a few niche areas; today’s comparative advantage vs. tomorrow’s needs; existing strengths vs. new competencies – comparative advantage must be created

62

GDP share of R&D expenditure in certain countries

Source: OECD, Main Science and Technology Indicators (http://www.research.fi/en/resources/R_D_expenditure/GDP_share_of_RD_expenditure_in_certain_countries)

63

http://www.research.fi/en/resources/R_D_expenditure/GDP_share_of_RD_expenditure_in_certain_countries

Technological Capability

Evolution of TC as a path dependent process:

– Production Engineering: (learning by doing followed by learning by adapting, aiming at augmenting productivity through efficient utilisation and adaptation of technologies at the shop floor )

– Reverse Engineering (learning by design and learning by improved de-sign, aiming at replicating processes and designs for better understand-ing and further improvement of given technologies)

– Basic (frontier) research

64

Technological Capability

- Presence of MNC subsidiaries in LDCs may also contribute to the TC acqui-sition by domestic firms through spillover gains.

Extent of gains depends on – vintage of technologies transferred to MNC subsidiaries– Absorptive capacity of domestic firms (PE RE or BR)

65

□ Can poor countries catch up through technology?

- There are significant gaps in technological development across countries.

- Poor countries are not catching up.

- Poor countries can catch up, if they generate economic conditions con-ducive to investment and a climate of civil liberties.

- They are likely to see inequality increase and the effect on economic growth is likely to be delayed.

66

Innovation system

Social and Human Cap-ital

UniversitiesS&T Training and Education

Absorptive Capacity‘Follower’ firms; Intermediate and End Consumers and Pro-fessional UsersMarket for Goods and Services

Research CapacityUniversities; Govt LaboratoriesBasic Scientific Research

Technology and Innovation Performance

‘Creative’ FirmsApplied RTD and Product /Process Development

Knowledge Users

Knowledge Creators

Public Sector Private Sec-tor

Source: Nauwelaers, 2003 67

Policies for enhancing the Innovation system

Source: The Impact of RTD on Competitiveness and Employment (IRCE). EC. 2003

68

Critical Lessons

- Investing in S&T capacity is not a luxury for the rich; it is an absolute ne-cessity for poor countries that wish to become richer – there is no choice.

- The time to start investing and building capacity is when you are poor.

- Countries at different stages of development, and employing different learn-ing strategies, need to invest in different aspects of S&T capacity – plugging in, catching up, innovating: different tasks and challenges for different stages of development.

69

High Tech Is Not the Only (or Best) Route to Prosperity and Competitiveness.

Vietnam

Thailand

Sri Lanka

Philippines

Pakistan

Mexico

Malaysia

Indonesia

IndiaColombia

China

Chile

Brazil

Bangladesh

Argentina

0

15

30

45

60

75

0.00 20.00 40.00 60.00 80.00 100.00

Manufactures exports (% of merchandise exports)

Hig

h-te

chno

logy

exp

orts

(% o

f man

ufac

ture

d ex

ports

)

70

Technological Progress in the World

Top 10 IT Performers are in the OECD.

Bottom 10 IT Performers are in sub-Saharan Africa.

Strong performers among LDCs: Hong Kong, Singapore and Mauritius.

Highly correlated with per capita GDP.

71

Productivity Catch Up: East Asia

1950 % of USA 2003 % of USA Growth Rate

U.S.A 12.00 100.0% 33.97 100.0% 2.00%

Japan 2.30 19.2% 24.78 73.0% 4.57%

1973 % of USA 2003 % of USA

Hong Kong 7.49 35.0% 22.28 4.74%

Korea 3.64 17.0% 14.25 42.0% 5.93%

Singapore 6.80 31.8% 19.63 57.8% 4.61%

Taiwan 4.37 20.4% 18.77 55.2%6.33%

72

Productivity Catch Up: Europe


U.S.A 12.00 100.0% 33.97 100.0% 2.00%

France 5.63 46.9% 37.75 111.1% 3.46%

Germany 4.36 36.3% 30.01 88.3% 3.95%

UK 7.49 62.4% 28.01 82.5% 2.91%

Spain 2.60 21.7% 22.21 65.4% 4.94%

73Source: Groningen Growth & Development Center

Productivity Catch Up: Latin America


U.S.A 12.00 100.0% 33.97 100.0% 2.00%

Argentina 6.16 51.4% 10.57 31.1% 1.04%

Brazil 2.48 20.7% 7.81 23.0% 2.21%

Chili 4.66 38.9% 14.07 41.4% 2.12%

Mexico 3.56 29.7% 10.24 30.1% 2.03%

74

References

Brad, Carlos A. P. 2003. “Leveraging the Knowledge Economy”, World Bank (PPT, Google).

Crafts, Nick. Divergence Big Time: Economic Growth Since 1870, (PPT, Google).

Paic, Alan. 2011. Enhancing South East Europe Competitiveness through innovation and human capital development, Bank of Greece-University of Oxford (SEESOX) Confer-ence Athens (PPT, Google).

Ray, A, S & Bhaduri, S. A game theoretic model of optimum IPR regime and technological capability: Implications of TRIPS for developing countries, Jawaharlal Nehru Univ., India (PPT, Google).

Rodriguez, Francisco & Wilson, Ernest J. III. “Are Poor Countries Losing the Information Revolution?”, University of Maryland at College Park (PPT, Google).

Watkins, Alfred. 2005. Building Science, Technology, and Innovation Capacity for Devel-opment, S&T Program Coordinator HDNED, Presentation to STI Thematic Group (PPT, Google).

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economic development 2013.05.24

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