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China and India as Emerging Technological Powers Carl Dahlman Georgetown University V Knowledge Economy Forum Prague March 28-30, 2006 ©cjd Share of Global GDP A Two Millennium Perspective Share of Global GDP (1990 Internatinal $) 40% 35% India 30% China United States 25% 20% 15% Western Europe 10% 5% Japan 0% 0 200 400 (Madison 2000, WDI 2005) 600 800 1000 1500 1600 1700 1820 1870 1913 1950 1973 1998 2000 2003 ©cjd World GDP PPP Share for different regions (1980-2003) World GDP PPP (constant 2000 International $) Share (%) 30.00 High income: OECD ex. US & Japan United States 25.00 20.00 East Asia & Pacific 15.00 Europe & Central Asia Latin American & Caribbean Japan Sub-Saharan Africa 10.00 South Asia 5.00 Middle East & North Africa 0.00 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 ©cjd Global View: Knowledge Economy Index (un-weighted) ©Knowledge for Development, WBI ©cjd Relative Size 15 Largest Economies 2003 Ave RGDP per capita growth 1991-2003 (%) Real GDP 2003 (Trillions of 1995 international $) China $5.60t 8 6 Germany $1.98t 4 India $2.69t Japan 3.12t United Kingdom $1.40t Canada $0.84t 2 Brazil $1.19t United States $9.45t Italy $1.36t Mexico $0.81t 0 0 5,000 10,000 15,000 20,000 25,000 Russian Federation $1.15t 30,000 35,000 France $1.42t -2 Real GDP per capita (constant 1995 international $) 2003 ©cjd Trillions of 1995 international $ 16 Real GDP (PPP): Projections 2004-2015 (Using 1991-2003 Average Growth Rates) India Canada Italy Russian Federation 14 China France Japan United Kingdom Brazil Germany Mexico United States China United States 12 10 India France 8 Italy Brazil United Kingdom Russian Federation Mexico Germany 6 Japan Canada 4 2 0 2003 2005 2007 2009 2011 2013 ©cjd 2015 China India Most Recent ©cjd Comparisons 1995 to Most Recent ©cjd China India Innovation Pillar Scientists & Engineers in R&D Scientific &Technical Publications Patents in US ©cjd Global R&D Effort in Comparative Perspective (Data for 2002) Source: World Bank SIMA Database ©cjd China India Innovation System ©cjd China India Education ©cjd Share of Global Merchandise Exports 1980-2004 (percentage) 14.00 United States 12.00 Germany 10.00 8.00 China Japan Netherlands Italy France United Kingdom Canada 6.00 4.00 2.00 04 20 03 20 02 20 01 20 00 20 99 19 98 19 97 19 96 19 95 19 94 19 93 19 92 19 91 19 90 19 89 19 88 19 87 19 86 19 85 19 84 19 83 19 82 19 81 19 19 80 0.00 ©cjd Source: WTO Database, 2005 China--Strengths Very high economic growth, large internal market Very high savings and investment rate Excellent at tapping into global knowledge through direct foreign investment and Chinese Diaspora Becoming world’s manufacturing base Very large supply of excess labor will continue to give it low wage advantage But moving rapidly up value chain from labor intensive to more technology intensive exports Efficient export trade logistics Critical mass in R&D is beginning to be deployed to increase competitiveness Strong investments in education and training Government with strong sense of national purpose ©cjd China -- Lessons Importance of nation state in developing long term strategy for country, providing stable macroeconomic framework, pragmatism in transition to market economy developing an institutional means for development to take place focusing for several decades on the importance of education and science and technology Importance of integration to world economy and of trade in goods as engine of growth Very effective use of direct foreign investment to move up technology ladder Strong investments in human capital as fundamental step to make the transition Effective use of Chinese Diaspora in high tech parks ©cjd and to bring in technology and access to markets India -- Strengths Jumped from traditional rate of 2-3% growth in past decades to 6-8% last decade Strong science and engineering capabilities centered in chemical and software areas Is becoming worlds service center for software development and back office offshore outsourcing Is also becoming center for contract innovation work for multinational companies Has large critical mass of educated, skilled, and English speaking knowledge workers and can increase this stock Has network of successful Indians in US and Europe providing links to markets, technology, and finance Relatively deep financial markets Is strengthening export orientation, and seeking strategic alliances, but strength is limited more to intangible trade rather than tangibles trade because of high infrastructure and regulatory costs ©cjd India -- Lessons Importance of investments in high level technical, scientific, and managerial capital through network of Indian Institutes of Technology and Indian Management Institutes Importance of turning brain drain to brain gain by harnessing Indian Diaspora in global high tech industry Importance of moving from self-reliance to greater international integration to accelerate and sustain growth Importance of improving the whole legal and regulatory environment to stimulate greater innovation and get more out of growing critical mass of resources allocated to R&D Importance of tackling necessary reforms in regulatory regime and improving infrastructure and education to really emerge as major export power ©cjd Conclusions Globalization increasing; global competition intensifying World Moving toward three economic blocks-US, EC, and Asia Asian Block rising in economic importance East Asia, and within East Asia, China’s entry into world stage unprecedented in speed, scope, and scale India on threshold of becoming another global economic power Both have critical mass in education and innovation capability which they are beginning to deploy very effectively Key lesson from China is how aggressively and effectively it has become major global player by making effective use of global knowledge and trade, plus investment in education Countries in ECA region will face increasing pressure to Upgrade broad economic incentive and institutional regime and participate more actively in global system Strengthen formal education and life long learning to be able to constantly restructure and compete Effectively tap global knowledge and combine it with domestic innovation efforts to raise productivity and competitveness Align themselves as part of global value chains ©cjd Annex ©cjd Benchmarking Countries in the Knowledge Economy: The Knowledge Assessment Methodology KAM: 80 structural/qualitative variables to benchmark performance on 4 pillars Variables normalized from 0 (worst) to 10 (best) for 128 countries and 9 regions www.worldbank.org/kam Basic scorecard for 14 variables for two points in time, 1995 and most recent Knowledge economy index (KEI) which includes 3 variables for each of the four pillars: Economic and institutional regime: tariff and non-tariff barriers, rule of law, regulatory quality Education: literacy, secondary and tertiary enrollment rates Innovation: researchers in R&D, scientific and technical scientific publications, and patents in the US ICTs: fixed and mobile phone lines per 1000 people, computer per 1000, internet users per 10,000 ©cjd KE Basic Scorecard Compared ©cjd Innovation System Compared ©cjd Education Comparison Czech Republic / ECA / G7 ©cjd Czech Republic, Slovakia, Slovenia ©cjd Belarus, Poland, Ukraine ©cjd Estonia, Latvia, Lithuania ©cjd Bulgaria, Hungary, Romania ©cjd Bosnia and Herzegovina, Croatia, Serbia and Montenegro ©cjd Albania, Armenia, Georgia ©cjd Kazakhstan, Tajikistan, Uzbekistan ©cjd End Carl J. Dahlman Luce Professor of International Affairs and Information Technology Georgetown University Email: [email protected] Telephone: 202 687 8045 ©cjd