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Catching up, innovation and future prospects Manuel Mira Godinho (ISEG/UTL) Presentation to the 2004 Globelics PhD School Presentation partially based on: J. Fagerberg and M. Godinho, Innovation and Catching Up, chapter in Jan Fagerberg, Richard R. Nelson and David Mowery (eds.) (2004), The New Oxford Handbook of Innovation, OUP. 1. “Catching Up” 2. Accounting for growth and catching up 3. Learning and Innovation 4. Future prospects for catching up 5. China Part 1 “Catching Up” Analysis of «catching up» not the same as Analysis of «economic convergence» Economic convergence literature: based on the prediction of conventional economic theory: diminishing returns to capital in advanced economies plus mobility of resources would bring poor economies closer to the richer ones However convergence has hardly been noticed on a global level in recent decades If anything over the last 200 years: divergence (GDPpc from 1:10 to 1:400) Results dependent on methods and indicators used E.g.Sala-i-Martin (2002) using country-weighted convergence measures concludes that 1990s witnessed some degree of global convergence (China effect), but divergence happened when taking into account worldwide distribution of income (again China effect) Catching up Literature Focus on specific cases: countries particularly successful in closing the gap in a relatively short span of time Focus on: - Historical conditions - Institutional arrangements - Innovation, technology and learning Old Institutionalism (Veblen...) Economic History (Gershenkron) Catching up 1950-2000 23 countries 1960 GDPpc 1999 GDPpc 1º Quartile US (West) Germany UK France Finland Italy 11.3 10.1 8.6 7.5 6.2 5.9 US Japan Singapore France Hong Kong Ireland 28.1 21.0 20.7 20.1 19.9 19.7 2º Quartile Argentina Chile Ireland Japan Spain Mexico 5.6 4.3 4.2 3.9 3.4 2.2 UK Finland (Unified) Germany Italy Taiwan Spain 19.2 19.1 19.0 18.2 16.6 14.6 3º Quartile Greece Hong Kong Portugal Brazil Singapore Malaysia 3.1 3.1 3.0 2.3 2.1 1.5 Portugal South Korea Greece Chile Argentina Malaysia 13.5 13.2 11.5 10.0 8.7 7.7 4º Quartile Taiwan Philippines South Korea India China 1.5 1.5 1.1 0,8 0.7 Mexico Brazil China Philippines India 6.9 5.4 3.3 2.3 1.8 1960-1999 6,46 6,26 5,78 South Korea Taiwan* Singapore* Hong Kong* Malaysia* China Japan Ireland Portugal Spain Greece Finland Italy France Brazil* United States India* Chile* United Kingdom Germany** Mexico Argentina* Philippines* 4,86 4,22 4,17 4,15 4,14 3,85 3,76 3,4 2,91 2,9 2,52 2,32 2,32 2,24 2,19 2,09 2,05 2,05 1,17 1,14 0 1 2 3 4 5 6 Part 2 Accounting for growth and catching up Factors behind successful catching up Accumulation Structural Change Institutional Change Accumulation and learning Structural Change Institutional change • Investment in capital goods and in infrastructure • Labour force • Investment in education and training • R&D, reverse engineering •... • Adjust sectoral composition of the economy towards sectors of high demand growth and technologically more progressive • Clustering • Firm demography, size distribution... • Create new (lacking) institutions or redesign existing ones Where is innovation?? Next: focus just on a small part of the previous table Accumulation and learning • Investment in capital goods and in infrastructure • Labour force • Investment in education andin •Investment training and education • R&D, reverse training engineering • R&D, reverse engineering •... Structural Change Institutional change • Adjust sectoral composition of the economy towards sectors of high demand growth and technologically more progressive • Clustering • Firm demography, size distribution... • Create new (lacking) institutions or redesign existing ones Part 3 Learning and Innovation 258,24 435,94 100,5 Hong Kong Singapore Ireland Chile Malaysia China United Kingdom Brazil Portugal Spain Argentina Germany France Finland Mexico Philippines United States Greece Italy South Korea Taiwan India Japan 2001 1980 FDI Stock / GDP 0 20 40 60 80 100 Learning: the relevance of connecting to external sources • Exports • Imports • FDI • Licensing • Subcontracting Example of Korea and Taiwan (Hobday, 2000) OEM – Original Equipment Manufacturing ODM – Original Design and Manufacturing OBD – Own Branding and Design US Finland South Korea France UK Spain Germany Japan Greece Argentina 1995 1965 Ireland Portugal Singapore Chile Education Level 3 Phillipines Mexico 20-24 years old Brazil Malaysia Source: UNESCO India China 0 10 20 30 40 50 60 70 80 Japan US South Korea Finland Germany France UK Taiwan Singapore* Ireland Italy Spain Brazil* Chile India China** Portugal Greece Argentina Malaysia Mexico Philipines** 90s 60s GERD/GDP 0 0,5 1 1,5 2 2,5 3 United States Japan Taiwan* Germany** Finland France UK South Korea Hong Kong* Italy Singapore* Ireland Spain Greece Malaysia* Argentina* Portugal Mexico Chile* Brazil* Philippines* India* China* 95-01 81-87 US Patents per million inhabitants in the country of origin 0,01 0,1 1 10 100 1000 Part 4 Prospects for catching up Questions for the future • Global convergence or divergence? • Will there be new countries catching up over the next decade(s)? • What are the factors that will account most for rapid catching up? And what will hinder most the catching up opportunities? Part 5. China 5.1. Opening up 5.2. Growth and accumulation 5.3. Threats 5.1. Opening up to external relations • 1978: policy shift • SEZ’s: Shenzen, Zuhai • Inward investment • Growth in trade Cumulative FDI 1978-2002 Total 447 b US$ HK 45,7% US 8,9% Japan 8,1% Taiwan 7,4% Virgins Is. 5,4% Singapure 4,8% S. Korea 3,4% FDI/GFCF 2002 4,6% 1990s > 10% UK 2,4% Germany 1,8% Macau 1,1% Netherlands 1,0% Caiman Is. 0,9% Canada 0,8% Malaysia 0,6% Others 6,6% External trade, 106 USD Comércio Externo 3500 00 3000 00 2500 00 2000 00 E xport 1500 00 Im p ort 1000 00 500 00 0 198 5 199 0 19 95 19 98 1 999 2 000 2001 200 2 EXPORTS • 2001: 23% GDP • FDI exports: 56% • Share in international market 1980 1,0% 1990 1,9% 2001 4,3% • 4th world exporter • High-tech exports: 19% IMPORTS: effects on world markets 5.2. Economic Growth and accumulation GDP growth 91-96: 11,6% 97-02: 7,8% Germany, Japan, US Taxas de crescimento do PIB real 14,00% 12,00% 10,00% 8,00% 6,00% 4,00% 2,00% 0,00% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 (a) CPI Indíce de preços no consumidor - Taxa de Variação 20,00% 17,50% 15,00% 12,50% 10,00% 7,50% 5,00% 2,50% 0,00% -2,50% 1990 1995 1998 1999 2000 2001 2002 Accumulation Investment rate 2002 44% Education: > 6 y.o., 2002 35% Primary education 38% Basic 13% Secondary education 5% Third level R&D, Scientific publications GERD/GDP (%) I&D/PIB % 1,4 1,2 1 0,8 0,6 0,4 0,2 0 1997 1998 1999 2000 2001 2002 5.3. Threats • Big train moving at high speed • What will make it get out of the tracks? Threats (1): Regional imbalances Coast 14% area 40% population 70% wealth > 90% FDI GDPpc 1:12 Demand for consumer goods in urban areas: from 19% in 1985 to 58% in 2002 Threats (2): Financial risks – Overborrowing – Public sector enterprises But External Reserves: US$ 400b Threats (3): Political tensions • • • Taiwan Tibet Hong Kong (1) + (2) + (3) But satisfaction with income growth END