Download The Knowledge Revolution and the Need to Develop

Innovation and Competitiveness:
A WBI Perspective
Carl Dahlman
ECA Innovation and Competitiveness Workshop
World Bank Institute
February 18,2004
Structure of Presentation
Knowledge and Growth in Historical
Perspective
The Knowledge Revolution
Implications for Developing Countries
High Growth Performance and Knowledge
Strategies
Benchmarking the World Knowledge
Economy
Innovation in Developing Countries
Challenges to Developing Countries
Challenges to World Bank
© Knowledge for Development, WBI
World GDP/Capita and Population
World GDP/capita and Population
A Two Millennium Perspective
GDP per
capita
World Population
(mill)
6000
7000
5000
6000
5000
4000
4000
3000
3000
2000
2000
1000
1000
World GDP per capita (1990 international $)
1998
1950
1870
1800
1720
1640
1560
1480
1400
1320
1240
1160
1080
1000
920
840
760
680
600
520
440
360
280
200
120
0
0
0
World Population (Million)
Source: Calculated from Angus Maddison, The World Economy : A Millennial Perspective, OECD: Paris, 2001
©Knowledge for Development, WBI
Growing Differences in GDP/Capita
Per Capita GDP for Selected Regions or Countries
(1990 international $, 1480-1998)
30000
25000
Western Europe
Eastern Europe
20000
United States
Latin America
15000
Japan
China
10000
India
5000
Other Asia
Africa
0
1480
1560
1640
1720
1800
1870
1950
1998
Source: Calculated from Angus M addison, The World Economy : A M illennial Perspective, OECD: Paris, 2001
GDP/Capita Growth: Korea vs Ghana
Knowledge makes the Difference
between Poverty and Wealth...
14
Thousands of constant
1995 US dollars
Rep. of Korea
12
Difference
attributed to
knowledge
10
8
6
4
2
Ghana
0
1960
1965
1970
1975
1980
1985
1990
1995
Difference
due to
physical
and human
capital
2000
©Knowledge for Development, WBI
Puzzle and Challenge
Puzzle: If it is so obvious that the
effective use of knowledge is such an
essential element of development,mwhy
hasn’t it made a central focus of
development strategy and advice?
Challenge: What do we need to do to
bring it to the mainstream and how can
we prepare Bank to provide relevant
advice.
New Growth Patterns
In last decade there has been renewed
interest in growth because:
Micro level evidence of increasing importance of
new technologies
• ICT revolution
• Increased share of high tech products in exports
• Managerial and organizational changes
Macro level evidence of changes of patterns and
nature of growth among OECD countries
• Surprisingly strong growth of US economy 1995-2002
• Reversal of trend towards convergence of per capita
income among OECD countries.
This has lead to focus on “new economy” to
understand what is going on
The Knowledge Revolution and “The
New Economy”
Ability to create, access and use knowledge is becoming
fundamental determinant of global competitiveness
Seven key elements of “Knowledge Revolution”
Increased codification of knowledge and development of new
technologies
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
Investment in Intangibles (R&D,education, software) greater
than half of machinery & equipment investments in OECD.
© Knowledge for Development, WBI
The Knowledge Revolution -2
Greater value added now comes from investment in
intangibles such as branding, marketing,
distribution, information management
Innovation and productivity increase more
important in competitiveness & GDP growth
Increased Globalization and Competition
• Trade/GDP from 38% in 1990 to 52% in 1999
• Value added by TNCs 27% of global GDP
Bottom Line: Constant Change and
Competition Implies Need for Constant
Restructuring and Upgrading
© Knowledge for Development, WBI
World Merchandise and Service Exports (1980-2001)
Trillions of US$
8.0
Services
7.0
Manufactures
Fuel and Ore
6.0
Agricultural and Food
5.0
4.0
3.0
2.0
1.0
0.0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
Changing Structure of Manufactured Exports
Toward High Tech. Products in OECD
High technology industries increased from
18.8% in 1990 to 25.3% in 1999
Medium high technology industries increased
from 38.7% to 39.1%
Medium low technology industries decreased
from 17.9% to 14.1% and
Low technology industries decreased from
24.3% to 21.3%
Therefore roughly 2/3rds of
manufactured exports from the OECD
countries is high or medium technology
Implications for Developing Countries
The knowledge revolution is being led by the
industrialized countries
Developing countries run risk of being left further
behind.
There is also trend towards rising inequality with-in
both developed and developing countries
Developing countries need to develop explicit
strategies to take advantage of knowledge revolution
to improve their competitiveness
Improve performance of traditional sectors
Leapfrog technologies
Develop new sectors
Address problems of increasing internal inequalities
Eight Fastest Growing Economies
(constant 1995 US$)
©Knowledge for Development, WBI
Few Countries Have Sustained High
Growth Rates over Long Periods
Most of these countries are or were until
recently developing countries
They have followed successful knowledge
strategies
Key elements of those strategies, in addition
to appropriate macroeconomic management
and good economic incentive regimes have
been:
Massively tapping into global knowledge
Investing strongly in education
And now investing heavily in ICT
To Help Developing Countries to this the World
Bank has Knowledge for Development Program
Policy Forums, Policy Conferences, Seminars, and
Training on K4D
Policy Services on K4D, ranging from full fledged
reports to customized policy notes
KAM Web-based tool on country knowledge
assessments (do-it-yourself analysis)
www1.worldbank.org/gdln/kam.htm
K4D Community of Practice
www.K4DCommunity.org
Framework for Using K4D:
Four Key Functional Areas
Economic incentive and institutional regime
that provides incentives for the efficient use
of existing and new knowledge and the
flourishing of entrepreneurship
Educated, creative and skilled people
Dynamic information infrastructure
Effective national innovation system
©Knowledge for Development, WBI
KAM Methodology
KAM: 76 structural/qualitative variables to
benchmark performance on 4 pillars
Variables normalized from 0 (worst) to 10
(best) for 121 countries
www1.worldbank.org/gdln/kam.htm
Basic scorecard for 14 variables at two
points in time, 1995 and 2002
Aggregate knowledge economy index (KEI)
Will illustrate with quick analysis of Slovakia
©Knowledge for Development, WBI
Armenia
Econ. Incentive Regime
INNOVATION:
10
ECON. INCENTIVE REGIME:
-Tariff & Non-tariff barriers
-Rule of Law
-Regulatory Quality
Information Infrastructure
5
-Researchers in R&D / mil pop
- Patents granted by USPTO / mil
- Scient. & Tech.
Publications / mil pop.
0
INFORMATION INFR.:
- Tel. Lines per 1,000 people
- Computers per 1,000 people
- Internet users per 10,000 people
Innovation
EDUCATION:
- Adult literacy rate
- Secondary Enrollment
- Tertiary Enrollment
Education
Armenia
most recent
1995
©Knowledge for Development, WBI
ECA & the World: Knowledge Economy Index
©Knowledge for Development, WBI
ECA & the World: Innovation
©Knowledge for Development, WBI
ECA & the World: Innovation
(absolute values)
©Knowledge for Development, WBI
New Area of Focus: Innovation
Policy and Strategy
Conceptual framework for innovation in
context of developing countries
Benchmarking countries in terms of
their knowledge capabilities
Developing policy toolkit for policy
advice in different archetypes of
countries
Conceptual Framework for Innovation
in Developing Countries
Innovation in developing countries
should be understood broadly as
something new to the local environment
Therefore distinguish two broad types
of innovation
Local improvements through adoption of
existing foreign technology
Development of technologies new to world
Innovation in Developing Countries
In developing countries the first type is
the most relevant, the second is more
rare, except for the most advanced
developing countries
Developing countries will get a bigger
economic impact from raising average local
practice to best world practice than from
creation of their own new knowledge
They will also get a bigger impact from
raising average local practice to best local
practice, therefore the tremendous
importance of domestic diffusion
Sources of Domestic Innovation
Imports of capital goods, components,
products or services
Products and services brought to and
produced in country by foreign
investors
Copying or reverse engineering of
foreign products and services
Technological efforts of domestic or
foreign firms, not all of which is based
on formal R&D
Bias Towards Formal R&D Efforts
Policy makers in developing countries tend to
focus on formal R&D and on publicly funded
research efforts
They tend to focus on glamorous high
technology sectors
They tend to focus on industry, to a lesser
extent on agriculture, and very little on
services
They also tend to focus on R&D inputs and
outputs, not so much on entrepreneurship
and management
Challenges
But, as noted earlier, focus of policymakers
are not the most important elements of the
innovation system in developing countries
R&D not the main source of innovation
High tech sectors are tiny part of developing
economies
Service sector is largest share of economic activity
Successfully applying knowledge requires
entrepreneurship, management, organizations,and
also depends on economic and institutional regime
Need a better conceptual framework and
policy tool kit that
differentiates across countries
Provides made to measure policy advice and
specific project design
Benchmarking Countries in Terms of
Knowledge Capabilities
Education and skills
Acquiring Knowledge
Creating Knowledge
Disseminating Knowledge
Applying Knowledge
Differentiated Strategies
Acquiring
Creating
Disseminating
Catch-Up
Most critical:
-lots of relevant
knowledge in
pubic domain
-large stock to
be acquired
formally
Less relevant or
feasible, but still
need R&D
capability to
acquire and
adapt.
Critical to focus
public efforts on
most relevant
Very important:
-technological
extension services
-metrology,
standards, testing
and quality contro
-technical information
Countries
Nearer
Frontier or
with Large
Critical
R&D Mass
Need to continue
tapping global
knowledge:
-FDI
-Licensing
_Strategic
alliances with
firms and R&D
Refocus public
efforts on
commercially
relevant research
Get private
sector to make
major effort
efforts to create
new knowledge
Dissemination efforts
continue to be critical
But need special
efforts on taking new
knowledge to
production:
-incubators
-technology parks
-clusters
National Innovation System
Needs to include not just R&D
institutions and universities, but
most critically firms and other
knowledge institutions
Needs to include attention to the
broader economic incentive and
institutional regime, education and
skills, and ICT-hence our K4D
framework
Challenges to Developing Countries
Finding advantageous ways to plug into and
compete successfully in the global system
Getting into global value chains
Moving up these value chains
Taking advantage of global knowledge to
improve welfare
Preventive health
Agriculture
Developing differentiated advantages
Building on local resources
Building on culture and other intangibles
Strengthening non-traded services
Challenges to World Bank
How to strengthen analytical capability on
innovation and growth
How to integrate this element into
mainstream of Bank work: CAS, PRSPs, etc
How to learn from our experience and tha of
others to design appropriate policy
recommendations and project interventions
for countries with different endowments and
at different levels of development
How to develop appropriate skill mix and
incentive mechanisms break down internal
silos to be able to deliver on these complex
projects.
How to break down the silos in our clients