Transcript The Micro Dynamics of Catch Up The Case of Indonesian

Tapping into Global Technology
Adam Eddy Szirmai
UNU-MERIT
http://www.merit.unu.edu
Sources for this presentation
A.Szirmai, The Dynamics of Socio-Economic Development.
An Introduction, Cambridge University Press, 2005:
Chapter 3, Theories and Experiences, Chapter 4:
Technology and Development,
http://www.dynamicsofdevelopment.com
J.Fagerberg and M.M. Godhinho, Innovation and Catching
Up, in J. Fagerberg (ed.), Oxford Handbook of
Innovation, 2004
M. Abramovitz, Thinking About Growth, in M. Abramovitz,
Thinking about Growth and Other Essays in Economic
Growth and Welfare, Cambridge University Press, 1989,
p. 3-79.
Introduction and Outline
1. Introduction
2. Differences in Economic Performance: The Role of
Technology
3. The Global Technology Race
4. Productivity and Technology
5. Proximate, Intermediate and Ultimate Sources of Growth
6. What is special about investing in knowledge and
technology? Innovation and Diffusion: spillovers and
capabilities
7. Production and Diffusion of Knowledge and Technology in
the International Economic Order
8. Mechanisms of International Technology Transfer
9. Social Capabilities, Technological Capabilities and Systems
of Innovation
GDP per capita (1990 PPP$) in Asia and Africa,
(South Korea, Malaysia, Thailand, Jordan, Pakistan,Ghana, Tanzania), 1950-2006
20,000
16,000
S ou th
Korea
12,000
M alaysia
8,000
T h ailan d
4,000
Jordan
Pakistan
G h an a
0
T an z an ia
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
South Korea
Malaysia
jordan
Ghana
thailand
Sources: 1950-1990, Maddison (2007); 1990-2006: GGDC, 2007
Tanzania
Pakistan
GDP per capita (1990 PPP$) in Asia and Latin America
Argentina, Brazil, China, India, Mexico, 1950-2005
10.000
A rge nt ina
8.000
M e xic o
6.000
B ra zil
4.000
C hina
2.000
India
0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
China
India
Argentina
Sources: 1950-1990, Maddison (2007); 1990-2006: GGDC, 2007
Brazil
Mexico
GDP per Capita, Middle Eastern Countries
20,000
16,000
South Korea
Saudi
Arabia
12,000
8,000
Iraq
Syria
Turkey
Iran
4,000
Jordan
China
Pakistan
Tanzania
0
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
South Korea
Tanzania
Pakistan
jordan
Turkey
Syria
Iran
Iraq
Saudi Arabia
China
Key concepts
• the concept of a productivity and technology race,
• Central proposition: No Asian miracle. No Chinese miracle. Rapid catch up
is a normal process if the conditions are right
• Potential advantages of technological backwardness: rapid catch up
through technology diffusion and absorption, without bearing the risks of
technology development.
• Changes in technology can create new opportunities for developing
countries: lead countries locked in obsolete technology; skipping
technology generations, e.g. environment, e.g. digital switching in
communications; opportunities for outsourcing
• Catch up is closely related to successfully tapping into and absorbing
global technology from technological leaders.
• Multinational Enterprises are key players in international technology and
knowledge flows. Their contributions to the building of domestic
technological capabilities depend on many complementary factors such as
absorptive capacities, skills and government policies.
• An important role of technology and innovation policy in developing
countries is fostering the absorptive capacities of individuals, firms, sectors
and national economies.
Technology Race
• Labour productivity as catch-all measure of
technological performance
• Shifts in global leadership and patterns of catch up
• Increase in global inequality, but increasing fluidity
of country positions in the international income
hierarchy.
International Economic Orders
-
-
Flows of goods and services (including capital goods, primary products, semifabricated products)
Financial flows: profits, investment, loans, transfers, grants, taxes
Flows of people: voluntary migration of labour, slave trade, contract labour, guest
workers
Flows of knowledge (Diffusion of science, knowledge, information and technology,
culture, symbols)
and
-
Intensity of relations between economic units (before 19th century no world
economy)
Institutional characteristics of relationships (political control, colonialism,
mercantilism, free trade, protectionism)
Dependency relationships between rich and poor countries
Patterns of Growth and Stagnation in the World Economy
Size of Income gaps between regions
Characteristics of the Post-War Economic Order
• Rapid growth of the volume of international trade.
• Breaking the mould of the colonial pattern of international
trade: the emergence of industrial exports from developing
countries.
• A modest share of developing countries in international trade.
• Financial flows from the developed countries to developing
countries
• Liberalisation of international trade.
• Liberalisation of capital flows; increase in the volume of
capital flows.
• The emergence of global production chains and the increased
importance of intra-firm trade.
• Acceleration of growth of per capita national income in both
rich and poor countries in the period 1950-1973, followed by
divergent growth trends.
Growth Rate of World Exports
1720-1820
1820-1870
1870-1913
1913-1950
1950-1973
1973-1985
1985-1996
1996-2000
2000-2007
1973-2007
0.9
4.2
3.4
0.9
7.9
3.6
6.6
7.0
9.7
6.2
Growth of GDP per Capita, 1870-2000
1870- 1900- 1913- 1950- 1973- 20001913 1913 1950 1973 2000 2004
Asian
countries
0.3
0.6
-0.2
2.6
4.0 5.0
Latin
American
countries
1.8
1.6
1.4
2.7
1.0 0.6
0.3
1.0
2.0
0.1 4.6
African
countries
Average
developing
countries
0.5
0.8
0.4
2.7
3.0 3.7
Average
OECD
countries
1.6
1.7
1.2
3.6
2.1 1.6
Source: Szirmai, 2005,
http://www.dynamicsofdevelopment.com
Share of Developing Countries in World Manufacturing Value Added
1960-2004 (%)a
West South and China
Latin
Developing
Year
Africa
Asia
East
America Countries b
Asia excl.
China
Excluding China (constant
1990$) c
1960 d
0.8
0.7
1.8
4.9
7.9
d
1970
0.8
1.3
2.4
6.0
10.5
1980
0.9
1.7
3.7
6.9
13.2
1990
0.9
2.0
6.2
5.5
14.6
1997
1.0
1.8
8.6
5.6
17.0
2000
1.0
2.2
9.4
5.5
18.0
2004
1.1
2.4
10.8
5.3
19.6
Including China (constant
1990$)
1980
0.9
1990
0.9
1997
0.9
2000
0.9
2004
1.0
1.7
1.9
1.7
2.1
2.2
3.6
6.0
8.1
8.8
10.0
1.4
2.6
5.9
6.6
8.5
6.8
5.4
5.3
5.2
4.9
14.4
16.8
21.9
23.6
26.6
Including China
(current $)
1993
1996
2000
2002
1.7
1.6
1.4
1.5
7.0
8.3
15.2
17.1
4.3
5.1
6.6
8.1
5.8
6.2
5.4
4.4
19.6
22.0
22.8
23.8
0.8
0.8
0.8
0.8
Source: Szirmai: www.dynamicsofdevelopment.com
Gross Value of Foreign Capital in Developing
Countries, 1870-1998 ($ bln)
1870 1914 1950 1973 1998 2003
Total in current
4.1 19.2 11.9 172.0 3590.2
prices
Total in 1990 prices
Stock as percentage
of Developing
Country GDP
40.1 235.4 63.2 495.2 3030.7
8.6 32.4
Maddison, 2001, 2003 from Portelli, 2006.
4.4 10.9
21.7 31.4
Changes in Technological Leadership
• Islamic World 750-1100
• China till fourteenth century
• Italian city states in fourteenth century: Venice, Florence,
interaction with the Islamic science and technology
• Portugal and Spain: fifteenth and sixteenth century
• The Dutch republic seventeenth century
• Great Britain: 18th century and 19th century
Importance of industrial revolution
• USA- 1890-present
• Future: China?, Japan?, India?
• Industry as engine of growth!! What about services?
Catch Up since late
19th Century
• Japan since 1868
• German and Russia since 1870
• After 1950: Taiwan, Korea, Singapore, Hong
Kong,Western Europe versus USA till 1973; Brazil
and Mexico till 1980
• Brazil and Mexico till 1979 followed by lost decade
• More recently Malaysia, Thailand, Indonesia, Turkey
(since 2001), India and China.
• In Europe periphery: Ireland, Spain, Poland
Falling Behind
•
•
•
•
Argentina since 1950
Brazil and Mexico after 1980
Ottoman empire till 1919
Former soviet republics, including Russian
Federation (recently recovery of Russia due to oil
exports).
• Most of sub-Saharan Africa (except South Africa),
but recent upturn.
Paradox of increasing global inequality, but very rapid
catch up in some countries
• Increasing global inequality of per capita incomes
• 1820: ratio richest to poorest country 2 to 1
• In 2006, the richest 29 countries are 14.2 times as rich
as the 48 poorest countries (in PPP dollars)
• But, if a country starts to catch up: explosive growth
is the normal pattern. Double digit growth in Japan,
Korea, Taiwan, Singapore, presently China and
Vietnam.
Table : Post-War Catch Up Episodes
Country
Period
Growth of GDP
Growth of GDP/capita
China
1978-2006
8,1
6,9
West Germany
1950-1973
6,0
5,0
India
1994-2006
6,7
5,1
Indonesia
1967-1997
6,8
4,8
Ireland
1995-2006
6,2
6,2
Japan
1946-1973
9,3
8,0
Korea
1952-1997
8,2
6,3
Malaysia
1968-1997
7,5
5,1
Russia
1998-2005
7,2
7,2
Singapore
1960-1973
10,0
7,6
Taiwan
1962-1973
11,4
8,7
Thailand
1973-1996
7,6
5,8
Vietnam
1992-2005
7,6
6,1
World
1950-1973
4,9
2,9
World
1973-1997
3,1
1,4
World
1997-2003
3,5
2,3
Sources: Maddison (2007), Groningen Growth and Development Centre, (2007)
Value Added per Worker (USA = 100)
90
80
Japan
Value Added per Worker (USA = 100)
70
Brazil
60
Australia
50
Korea
40
Taiw an
30
20
Indonesia
10
India
China
Zambia
Tanzania
0
1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Year
Australia
Taiwan
China
Tanzania
India
zambia
Indonesia
Brazil
Japan
Korea
Value Added (USA =100)
60.0
50.0
Taiw an
40.0
30.0
20.0
Indonesia
10.0
China
India
Tanzania
0.0
Zambia
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002
Taiwan
China
India
Tanzania
Zambia
Indonesia
Productivity and Technology
1. Labour Productivity, National Income per Head and Welfare
GDP/P = GDP/H * H/L * L/P
Productivity and competitiveness
Productive Capacity as a core concept in development
2. Rough Indicator of Technological Performance
2.1 Capital accumulation
2.2 Increase scale of production (Verdoorn’s law)
2.3 Education and human capital
2.4 Efficiency, including efficiency in the organisation
of production
2.5 Disembodied Technological Knowledge:
knowledge about product and process technology
3. Central goal of technology and innovation policy: increasing
technological and economic dynamism
Proximate and ultimate sources of growth
Ultimate Sources of Growth
Demographic Trends
Institutions
Geographic Conditions
Historical Developments
External Shocks
Culture and Attitudes
Class Structure
International power relationships
Long-run developments in science and
technology
Distance to technological Frontier
Intermediate Sources of Growth
Economic, Technological and Social
Policies
Trends in demand (domestic,
international)
O = f [(K, L, R) * e] + a + p
Proximate Sources of Growth
where:
O = National Income
K = Capital
L = Labour
R = National Resources
e = Efficiency
economies of scale
efficient allocation of factors of production
o within sectors (e.g. capital labour ratios)
o between sectors (structural change)
o Specialisation between countries (comparative advantage)
capacity utilisation/organisational efficiency
disembodied technological change
a
p
net factor income from abroad
colonial plunder, voluntary transfers, development aid
groups
Proximate Factors in Growth and Productivity
1. Discovery of riches and natural resources
Discovery of natural resources - gas, coal, oil, gold etc - can promote
growth. However, such growth will not be sustainable unless the revenues
from windfall discoveries are transformed into more durable sources of
growth
2. Labour supply and effort
3. Theft
Appropriating resources from other societies and using these to accumulate
capital. If resources are appropriated, but not reinvested they will have the
same non-sustainable effects as windfall discoveries
4. Saving and accumulating capital
5. Education and the accumulation of human capital
Proximate Factors II
6. Efficiency
effects of specialisation and international trade,
economies of scale,
structural change
better utilisation of capacity (technical efficiency)
Choice of techniques (economic efficiency)
7. Organisational Efficiency
efficient organisation
monitoring and motivation
the physical organisation of the production process (logistics)
8. Disembodied Technological change
Developing or acquiring new knowledge about how to produce valued
goods and services and applying such knowledge in production. Such
knowledge can be new to the firm, new to the country or new to the world.
Disembodied Technological Change
What do we mean by disembodied technological change?
a. changes in a stock of knowledge available to the firm, the sector or the
country;
b. improvements in the knowledge absorbed by employees and managers in
school and on the job (Maddison, 1987, p. 662);
c. learning by doing and learning by using of employees and managers on the
job;
d. disembodied technological change as improvements in technological
capabilities of firms and social capabilities of countries
e. the positive external effects of knowledge spillovers within an economy or
between economies;
f. the productivity improvements due to the complementarities of human
skills and human capital and increases and improvements in the capital
stock.
Investing in Knowledge and Technological Change
• Investment in knowledge different from investment in human and physical
capital: non-rival and non-excludable. Knowledge diffuses and spills over.
Technologically backward economies can profit from advantages of
backwardness.
• Advanced economies profit more from investment in knowledge than
backward economies. More local spillovers, increasing returns to scale for
capital and knowledge. Investment in knowledge leads to shifting the
frontiers of knowledge and economic divergence
• Production of knowledge primarily takes place in the technologically
leading countries. This contributes to divergence
• International technology diffusion and spillovers can result in convergence
and catch up if developing countries can tap into global knowledge flows.
• Changes in technological paradigms create new opportunties for catch up.
• Profiting from international technology diffusion and technology spillovers
depends on technological capabilities, social capabilities, technological
congruence and appropriateness and absorptive capacities.
• If catch up takes place, it is very rapid and dynamic
US Patent Activity, 1870-2006
Year
1870
1900
1950
1973
1990
1995
2000
2005
2006
patent
patents
applications granted
19171
39673
67264
103695
12157
24656
43039
74139
99220
113955
176083
157741
196436
share of patents granted (%)
foreign
developing developing
patents
country
countries
patents
excl. S.Korea
46.6
43.4
44.9
47.6
47.9
1.1
2.8
4.8
7.7
8.8
0.3
0.5
0.7
1.1
1.3
Tapping into Global Technology Flows
• Catch Up in Modern Globalised International Order closely
linked with Technology Diffusion and Technology Acquisition
• Every single example of successful catch up since 1868 based
on tapping into global technology flows.
• The Myth of 'Indigenous Technology'
• Successful Technology Acquisition is Innovation. Technology
acquisition is more than copying. It involves adaptation and
effort.
• Absorptive Capacity is the key factor distinguishing between
success and failure in Development.
• South South Flows as a complement to tapping into global
flows, not an alternative.
Mechanisms of Technology Acquisition and Transfer
• Acquisition of technology licences.
• Technology transfer as part of a package of FDI or joint ventures
• Reverse engineering. Acquisition of technology through imports of new
products which are copied through reverse engineering
• Competing on export markets.Competing on international export markets
and having to meet international quality standards has important learning
effects
• Original equipment manufacturing: producing for foreign firms, according
to specifications supplied by these firms
• International technological and scientific collaboration
• Acquisition of technological know-how through the hiring of expatriate
experts
• Sending own personnel abroad for training and schooling. This was the
path followed by Japan in the beginning of the twentieth century
• Investing in the most advanced economies
FDI and Multinational Enterprises
• Increasing importance of FDI as a mechanism of technology transfer.
• Emergence of Global Value Chains Coordinated by Multinational
Enterprises
• Inherent tension between the corporation's desire to integrate its activities
on a global basis and the host country's desire to integrate an affiliate into
its national economy (Dunning)
• The more developed the absorptive capacities of the host country, the more
it will profit from foreign investment
• The more stable the investment climate the more the host country will
profit from foreign investment
• The role of short term speculative investment is a potential threat to the
national innovation system.
• Increasing internationalisation of R&D, but still primarily within the
TRIAD (USA, EU, Japan).
• Policy: create complementary capabilities and skills, absorptive capacities,
maximise learning from FDI.
• New phenomenon: FDI from major developing countries, such as Brazil,
India, China and Middle Eastern Economics. New machanism of
knowledge flow.
Congruence and Capabilities
• Technology Gaps: the larger the gap the greater the
catch up potential
• Technological Congruence of best practice with
natural resources, factor supplies and other
characteristics such as the size and homogeneity of
markets. Too large gaps, diminishing congruence
• Social capability refers to the use a country can make
of advanced technology and its capacity to acquire it
in the first place (Abramovitz).
Absorptive Capacities: Social Capabilities
• Technical competence of a country's people
• Levels of general education
• The share of population with training in technical
subjects.
• Management experience with large scale production
• Experience in service sector
• Quality of Financial system
• Quality of Infrastructure
Absorptive Capacities of domestic firms: Technological
Capabilities
•
•
•
•
Production capabilities
Investment Capabilities
Adaptation Capabilities
Innovation Capabilities
• Capability building by firms and sectors
• Industrial and technology policies which create
incentives and opportunities for learning
Absorptive Capacities: Systems of Innovation
•
•
•
•
•
•
•
•
National and sectoral systems of innovation part of social capabilities
The relationships and networks between actors: Government, Knowledge
Institutions, Firms. Interactions between user and producer sectors. Public and
private sector.
Role of home market
Property rights
Non-price relations including power, trust and loyalty. Interactive learning instead
of transactions.
Innovation systems determine how effectively international knowledge is absorbed,
domestic knowledge is generated and how knowledge spills over and diffuses
through the domestic economy.
A narrow focus on the role of science and science-based activities is not what is
most needed. We need a concept that covers all aspects of competence building in
socio-economic activities. From science and technology policy towards innovation
policy.
Every country needs to develop systems of innovation which are tailored to local
characteristics and possibilities of tapping into global knowledge flows.