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A technological capability story behind exports of fish fillet and iPods Vandana Chandra (Joint work with Jessica Boccardo, and Israel Osorio)[1]) October 15, 2007 [1] The views and interpretations in this document are those of the authors and should not be attributed to the World Bank, or to any individual acting on its behalf. Outline Background – uneven growth across regions Relationship between income differentials and trade and technology – raises many questions… What explains these income differentials? Export mix. ? Technology definition – deterministic Other explanations – Natural Resource Curse? Is SSA special? – also deterministic These explanations do not explain the link between technology, trade and income - need an alternative approach What determines it? What can it explain? Policy implications Lessons Manufactured products Rich countries Technology Transfer Poor countries ? Primary products Hi Tech (iPods) Sophisticated Exports (Fish Fillet) China Chile India Kenya Malaysia Background – uneven growth 1980s – 2004: GDP per capita increased - all regions BUT the gains were hugely uneven. Winners: First and Second East Asia Country level - China (425 %), Korea (225%), Thailand (150 %), Malaysia (100 %), India (100 %) Regional average GDP per capita SA SSAnoZAF CHN Second_EA LAC First_EA 0 5,000 10,000 15,000 Average GDP per capita (constant 2000 US$) 1990-95 Data: W DI 2000-04 20,000 3 Questions In a world where comparative advantage determines the pattern of trade: How can a country become richer? Export more of the same. Why did some developing countries become richer and others not? Among other things, do trade and technology explain this? What explains the differences in income levels over time within a region, and between regions? Macro Stability? Regional average Total exports/GDP SA Openness? LAC CHN Not the full story SSAnoZAF Second_EA Is it the Export Mix? First_EA .8 .6 .4 Total exports/GDP, (%) 1990-95 Data: WDI and COMTRADE .2 2000-04 0 (A) Technology classification - Lall (2000) Links a product to its technology content. Cereals and fish are primary (PP), minerals are resource-based (RB) and manufactured products are low, medium or hi tech (LT, MT,HT) Regional export Composition Tech categories 2000-04 0 0 .2 .2 .4 .4 .6 .6 .8 .8 1 1 Tech categories, 1990-95 First_EA HT OECD MT SA LAC LT SSAnoZAF RB PP First EA: HKG, TW N, KOR and SGP First_EA HT OECD MT SA LAC LT SSAnoZAF RB PP First EA: HKG, TW N, KOR and SGP Problem: Too deterministic and ad hoc. Implies manufactured exports are the path to growth.. Other explanations for differences in the export mix (B) Country characteristics constrain diversification and growth 1. Is there a natural resource curse? Prebisch and Singer in 50s and 60s and Sachs and Warner ’90s). In reality, ‘neither curse nor destiny” - Lederman and Maloney ,2007; Bonaglia and Fukasaku, 2003. 2. Is Sub-Saharan Africa special? Transactions costs, and risks of manufactured exports (Collier, 1998, 1999), low skills, land abundance (Mayer and Woods, 2001) and low Net TFP (Eifert, Gelb and Ramachandran, 2005); infrastructure (Habiyaremya and Ziesemer,2006) Main implication of this research: Deterministic - In poor countries, manufactured exports are the PATH to growth More questions about differences in the export mix Technology is transferred from rich to poor countries. BUT, it is not reflected in the pattern of trade. WHY? • If off-the-shelf tehnologies are available to all – why do only some poor countries adapt them to grow faster? One explanation – differences in technological capabilities…. The Pattern of trade has changed: 1. East Asia – exports Hi-tech iPods!! 2. Some other countries reversed pattern in select sectors: China replicated East Asia, India, Chile, Kenya… 3. India technological capabilities reversed historical flows of services Need a concept that explains this phenomenon. Sophistication of a Product: PRODY Designed by Hausmann, Hwang and Rodrik (2005). (Lall (2005)..) Reflects the per capita GDP of each country that exports the product weighted by the exporter’s revealed comparative advantage in it. Attaches to each product a value that reflects the income potential/level of the product. Prody value of selected Products (by tech category) 30,000 20,000 15,000 10,000 5,000 HT & MT LT RB PP Coffee,whether or not roasted Potatoes,fresh or chilled Bacon,ham & other dried Printing and writing paper Fish,prepared or preserved Knitted/croch. fabric Articles of leather Television receivers Wood- and resin-based chemical prods. Internal Combustion piston engines 0 Electronic microcircuits Prody ( in US$) 25,000 Prody of the Top 50 products explains GDP per capita Q: What determines the ‘Prody Top50’ of a country’s export basket? Its technological capabilities. First EA. OECD 25000 10000 10000 9000 8000 7000 15000 6000 5000 10000 4000 3000 5000 2000 Prody50 and GDP( in US$) 20000 20000 8000 7000 15000 6000 5000 10000 0 0 GDP Prody50 SSA 4000 3000 5000 2000 1000 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Prody50 and GDP( in US$) 9000 1000 0 0 GDP Prody50 4500 Prody50 and GDP (in US$) 25000 4000 3500 3000 2500 2000 1500 1000 500 0 GdpSSA Prody50 Technological capabilities have a large tacit element. Difficult to measure. So, we use 3 concepts that measure what they can do or produce. (1) Stock of patents Innovation over time 0 5000 0 50000 patentF_EA 100000 Stock of patents in OECD counties 10000 Stock of patents in First Tier EA 1960 1970 1980 year 1990 2000 1960 1970 1990 2000 Stock of patents 0 0 50 50 100 150 100150200250 Stock of patents 1980 year 1960 1970 1980 year Second_EA 1990 2000 LAC 1960 1970 1980 year SA 1990 SSA 2000 Technological Capabilities 2) Imports of Computers per Capita 3) Exports of Ht&Mt to Developed countries(% of total exports) First Asia in 2000 Exports of Ht&Mt to DEv/total exports 0.004 0.002 0 -0.002 Second EA LAC SA Rest EA SSA -0.004 -0.006 -0.008 -0.01 -0.012 Imports of Computers per capita Imports of Computers per capita Computer Penetration in 2000 0 First EA -0.05 -0.1 -0.15 -0.2 Exports of High and Medium Tech products to Developed Countries in 2000 0.4 0.2 0 First EA Second EA LAC RestEA SSAnoZAF SA Determinants of Sophisticated exports - model Dependent variable: Share of PRODY of Top 50 exports Explanatory variable: technological capabilities (3) Results: A positive and significant relationship between export sophistication and each technological capability variable. Openness matters. Policy implications – no short cuts to capability building Technology can be imported. Technological capabilities cannot. TACIT. Need to be built domestically and monitored. Monitorable indicators, Country-specificity is key – sensitivity to institutions Openness to trade and FDI not sufficient. Higher education is necessary but not sufficient. Complementary policies could include: – Skills and training focused on building indicators of capabilites - science, technology/engineering, ICT, management education – market failures point to an important role for public policy – Regulation of phytosanitary standards and quality control – Informational externalities - facilitate firms’ access to global market; logistics; marketing; national brand name promotion (Chilean wine, Indian grapes) – Coordination externalties – Others… Lessons Learned (1)… To leapfrog – a country needs to diversify into sophisticated products. First East Asia demonstrated this; Second East Asia repeated it; China has replicated this; others are replicating too in select sectors – need to scale up Crux – how do you do it? Diversity of country experiences indicates that there is more than one way to do it. Taiwan and Korea are extreme examples of high-risk policy choices BUT contrast with low-risk options India, Chile, Kenya, Uganda…. Lessons (2) – from more trade openness to more tech capability building… Empirical evidence – imported technology is slow to deliver technological skills FDI does not flow easily to countries with weak technological capabilities Technological capabilities can be acquired and can change what you export Technology and trade – even more critical for developing countries today Hi-Tech is not the ONLY path to growth Today, trade patterns are indeterminate There are multiple paths to leapfrogging for natural resource and primary product exporters Exports of manufactured prodcuts – low, medium and hi tech – are only ONE path For Sub-Saharan Africa – large range of opportunities – evidence? Uganda – Nile Perch -30% of total exports; Kenya – cut flowers – 3rd. Largest in world.