Transcript Innovation, R&D Investment and Productivity in Latin American Firms

Innovation, R&D Investment
and Productivity in Latin
American Firms
Presentation of Preliminary Results – April 21
DIA 2010 Chapter 3 - Productivity
Dynamics: The Role of Innovation
Motivation
Underperformance in productivity growth
Innovation (new products and/or processes) as the
engine of productivity growth
Investment in R+D+I is low, and mostly public
LA Firms under-invest in R+D+i
Public policy has stressed public investment and
basic research
Only recently there is an interest in innovation at the
firm level
Emerging available information
R&D Expenditure as percent of GDP, 1995 (or earliest available) and
2004 (or latest available)
4.50
OECD & China
2004
Latin America & Caribbean
1995
4.00
3.50
3.00
2.50
R&D Expenditure as percent of GDP, 1995 (or earliest available)
%
and 2004 (or latest available)
R&D Expenditure as percent of GDP, 1995 (or earliest available)
and 2004 (or latest available)
2.00
1.50
1.00
u
&T
ob.
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Par
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ay
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r
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om
bia
Pan
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ivia
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ta R
ica
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xico
Cos
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Arg
le
Chi
il
Bra
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na
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and
Chi
EU
25
OE
CD
US
A
ea
Kor
Jap
an
Fin
la
nd
0.00
R&D Expenditure
as percent of GDP, 1995 (or earliest available)
and 2004 (or latest available)
LAC
0.50
a
d
n
o
Para
guay
Vene
z uela
El Sa
lv ado
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ma
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Arge
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LAC
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m
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Ur ug
ua y
Spai
EU25
Irelan
OEC
D
USA
Ch in
a
Finla
nd
J apa
n
Kore
R&D Expenditure by source of financing (percent) 2004 (or latest
available)
100%
80%
60%
Other sources
Business Sector
40%
20%
0%
Kor
ea
St a
t es
Ch
ina
F in
lan
d
Jap
an
OE
CD
Spa
in
it ed
ta R
ica
Me
xico
LAC
Bar
bad
os
Bra
zil
Bo l
ivia
Ecu
ado
r
Arg
ent
ina
Par
agu
ay
Bah
am
as
Ch
ile
Co
lom
bia
Nic
ara
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El S
alv
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r
Bel
ize
Gu
ate
ma
la
Per
u
Ven
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ela
Ho
ndu
ras
Uru
gua
y
Gu
yan
a
Pan
am
a
Trin
.&
Tob
.
Cos
Un
High technology exports (% Manufactured exports) 1995 (or earliest
available) and 2005 (or latest available)
45
OECD & China
Latin America & Caribbean
40
2005
1995
35
30
25
%
20
15
10
5
0
Objectives
Characterization of innovative firms
Determinants of innovation
Private investment in R+D+i impact in
productivity growth
Dynamic value chain and clusters impact in
technology up-grade and productivity growth
Bring conclusions and recommendations for
public policy
Microeconomic analysis
Crepon, Duguet and Mairesse model (CDM)
Common findings
–
–
–
–
Less innovation than expected
Market failures as factor in low innovation
Large firms size favors innovation
Sector matters
State of the art of the analysis of innovation
Determinants of innovation that have received
limited attention
Data sources: Availability of Innovation
Surveys
Base model: CDM (Crepon, Duguet
and Mairesse) Model
Q= f(Y,I)
I= g((Z,K)
K= h(X,C)
(1)
(2)
(3)
Q denotes the firm’s performance (for example, productivity);
Y denotes exogenous determinants of the firm performance and environmental variables;
I denotes the innovative outputs of the firm (number of patents, changes in firm
organization, introduction of new production processes and new products).
In the second equation, which describes the determinants of innovative output:
Z denotes the exogenous determinants of the innovative output (sectoral effects…)
K is the firm’s investment in R&D and other innovation inputs.
Finally, in the third equation:
X represents the exogenous determinants of investment in R&D and innovation (firm age,
size, sector, and structure).
C is a set of constraints leading to an optimal level of investment.
Further evolution and fine tuning of
the model
Focus on Argentina, Chile, Colombia, Peru and
Uruguay
Seeking comparability and conceptual coherence, an
effort is ongoing to run strictly comparable
specifications:
– Griffith et.al (2006)
– Home-grown common specification
– OECD micro data project formats
Innovation Survey-based analysis: A
sample of preliminary findings
Across countries, a high proportion of firms qualify as
engaged in some form of innovation activity.
A small minority engages in R&D activities
Impacts of innovation on productivity seem to be clearly
observable, but very likely lagged, particularly as far as
product innovation is concerned
A wide array of innovation inputs is positively related to
innovation output and productivity (HK, innovation
intensity, equipment)…
Presence of foreign capital does not seem to be as
clearly related to innovation activity as normally
expected.
Investing in innovation means investing
in capital, management and training…
Arbelaez et al. (2009)
Size matters, foreign capital does not…
Castro et al, 2009
.
A variety of innovation outputs
Arbelaez et al. (2009)
Access to finance, transport and enforcement
of property rights rank at the bottom of the
obstacles for investment on innovation
Castro et al, 2009
Preliminary Findings: Case Studies
Chile: Copper, Pulp & Paper
Copper: Strong dynamism of industry and high productivity per employee (capital
intensive industry). Sector with most attraction of FDI and exports in Chile. 10%
annual productivity increase in the 1990-2000 period.
Low investment in R&D by Chilean firms in the copper sector. (May be explained by
the higher potential of process innovation – not measured -, rather than investments
in product innovation)
Pulp & Paper: Soaring increase in exports in 1990-2006 period. Chile is today the
10th largest producer and 5th world exporter of pulp & paper. Productivity has
increased 300% in the 1990-2006 period.
Some investments in R&D in the pulp & paper sector, but still low when compared to
similar sectors in other regions (Only 39.13% of firms in the sector invest in R&D)
Found the presence of a lagged positive effect of process-innovation on productivity.
This effect would materialize two years after the innovation has occurred.
Preliminary Findings: Case Studies
Costa Rica: ICT Sector
Preliminary results from a small sample of firms surveyed show high levels
of innovation outputs in the local ICT sector
High % of companies engaged in R&D activities (84%) and other
innovation-input activities, such as: patenting (63%), training of human
resources (100%), receiving technical assistance (57.9%) and consulting
services (95%), product or process designing (89%), organizational
changes (63%), reengineering processes (42%)
Very low coordination by ICT firms in R&D activities increasing costs of
producing new knowledge. Training from suppliers is one of the most
intensive coordination.
“In-house innovation”: Most firms of the ICT sector say that they perform
most of their R&D activities in-house (75% of firms surveyed: always in the
firm). This could be explained by either the low degree of coordination
existing between firms, or a desire to maintain secrecy/confidentiality.
Found significant “Knowledge Spillovers” as a result of labor mobility
between MNCs operating in the country and local ICT firms.
Preliminary Findings: Case Studies
Costa Rica: ICT Sector
Preliminary Findings: Case Studies
Costa Rica: ICT Sector
Preliminary Findings: Case Studies
Colombia: The Cosmetics Sector
High growth rates in last decade, high value added by employee and
with considerable profit margins vis-à-vis other sectors.
Very low innovation in products by national firms (92% of patents
issued between 1993 and 2007 belong to Procter & Gamble,
Colgate, Sanofi and Unilever)
Poor innovation in processes, but very high innovation in marketing
(Direct sales system is an example for the industry in the world).
Analysis of innovation along the value-chain: raw materials, contract
manufacturer, brand owner, distributor, retail, consumer.
Innovation and governance according to: complexity of transaction,
ability to codify transaction and capabilities of the supply base
Value Chain Governance Types and Power Asymmetry
Source: Gereffi et al (2003)
Preliminary Findings: Case Studies
Argentina: agricultural machinery & agro-biotechnology
Seed Drills & agro-biotechnology sectors: high levels of innovation,
productivity and international competitiveness (“outliers” in context of
low manufacturing productivity)
Case explores the importance of collaboration/association: preliminary
findings: productivity of firms in the seed drills sector linked to level of
collaboration/association developed between them.
Regional Innovation Systems (RIS): the case focuses on the relation
between geography and innovation. Initial findings: these “systems” are
created with relative spontaneity, but are not totally consolidated until a
more articulated process is institutionalized (through public and/or
private agents)
Preliminary Findings: Case Studies
Argentina: agricultural machinery & agro-biotechnology
Exportaciones de maquinaria agrícola, 1998-2008
Preliminary Findings: Case Studies
Peru: Pisco & Shoe Industry
Pisco sector: high articulation/cooperation between producers. Low
innovation levels, but strong increases in productivity & exports.
Shoe Industry: low articulation/cooperation between producers. Very
low levels of innovation. Large percentage of SMEs with bottlenecks in
production due to: i) low quality of product; ii) limitations in availability of
components; iii) quantity of technical norms.
Preliminary Findings: Case Studies
Exports of Pisco: 2002 - 2007
1,200,000
180,000
160,000
1,000,000
FOB US$
800,000
120,000
100,000
600,000
80,000
400,000
60,000
40,000
200,000
20,000
0
0
2002
2003
2004
2005
Years
2006
2007
Liters of pisco
140,000
Exports FOB
Liters
Addendum: Productivity and the ICT
revolution in LAC
ICT is widely credited as the engine of productivity growth in the US in
the late nineties and early 00’s
It is believed to be a major factor in the considerable growth of
productivity in services
The different recent path of productivity growth in the US and Europe is
commonly attributed the slower adoption of ICT in the EU
ICT has been shown to have a positive effect in productivity in LAC,
wherever it has been introduced early and intensively (some sectors in
Brazil, for instance)
Yet it is a well established fact that the ICT revolution arrived late and still
remains lagging behind in LAC as a whole, when compared to the US
and Asia adoption
Hence, the slow pace of the ICT revolution in LAC serves to illustrate the
impact of innovation of productivity, and highlights the difficulties of taking
for granted that spontaneous forces will take care of introducing new
technologies in the region’s firms and economies in the absence of
concomitant investments (in HK, infrastructure...). This could also be a
factor behind the acute problems with productivity in the service sector in
LAC.