Transcript From Natural Resources to the Knowledge Economy

Innovation and Growth in LAC:
The Next Generation of Reforms
William F. Maloney
Office of the Chief Economist, LA, World Bank
Why Innovation Push Now?
Ongoing work



WBI: knowledge economy studies
HD: higher education projects
FPSI: E-gov, E-Bus.
Region- Preoccupation with slowed growth
Regional Flagships:

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From Natural Resources to the Knowledge Economy…
Why did LAC’s natural resources sectors underperform
Scandinavia, Australia- Lack of innovative capacity
Closing the Gaps in Education and Technology-takes a
closer look
TFP growth faster in agriculture than
manufacturing.
Half of Growth is Total Factor Productivity
TFP growth (1967-1992)
8
France
6
Denmark
Italy
Sweden
Austria
4
Agriculture
Turkey
Venezuela
Average
developed
countries
Japan
Tunisia Greece Colombia
Chile
Canada
South Africa
UK
Kenya
Pakistan
Sri Lanka
2
India
Indonesia
Finland
Korea
Taiwan
Philipines
Netherlands
Peru
El Salvador
Egypt
USA
Australia
Jamaica
Sample Average
0
-6
-4
-2
0
-2
Trinidad & Tobago
2
Average
developing
countries
Costa Rica
-4
Manufacturing
4
6
8
LAC- way below R&D
Superstars
R&D
GDP
 GDP 
 1
 2 
GDP
CAP
 CAP 
2
5.0%
Predicted & Observed R&D/GDP
4.5%
4.0%
Israel
Finland
3.5%
3.0%
2.5%
Korea
2.0%
1.5%
China
1.0%
India
0.5%
Argentina
Mexico
0.0%
4
5
6
7
8
Log GDP per Capita
9
10
11
LAC’s efficiency of converting
R & D into patents,TFP is also low
Patents = B1R&D + Bp country*R&D
20.00%
15.00%
10.00%
-5.00%
-10.00%
NOR
FIN
ISR
KOR
TWN
VEN
URY
PER
MEX
CRI
COL
CHL
BRA
0.00%
ARG
5.00%
National Innovation System
Global Knowledge Economy
Human Capital
Think Tanks/
Antenna
University
Innovation
Clusters
Firms
Innovation & TFP Growth
Other Public Policies:
Rules of the Game
Infrastructure (ICT)
Subsidies/Tax incentives
Coordination Initiatives
Global Knowledge Economy
Why is LAC not Finland?
The challenge ahead
Weak human capital
Not addressing serious mkt failures in innovation
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Few incentives to R & D - tax breaks, subsidies
Weak efforts to help firms learn

Incubators, research parks, consortia
Disfunctional NIS:
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LAC’s NIS-closer to the Holy Roman Empire than Finland.
No mkt forces assure elements of NIS work together
Missing supporting markets-credit, labor
The Bank’s Challenge
Hippocratic Oath- “First do no harm”

Mkt failures- last refuge of the interventionist scoundrel
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Innovation: the Trojan horse of state discipline?
Bad incentives, institutions already implemented that will
be hard to reform- U’s, public labs
Commit to a long dialogue
Know what we’re talking about!
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Down to policy details
Do/sponsor the LDC research necessary and..
Get our models right:
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What’s a knowledge economy anyway?
What the heck is high tech?
Who Should LAC follow?
Deviations from
expected
level
2
0.10
2
FINLANDIA
0.10
COREA
Finland
Korea
1
0.05
1
0.05
0
0.00
0
0.00
-1
-0.05
-1
-0.05
-2
-0.10
-2
-0.10
1972
IED
FDI
1977
1982
I+D
R&D
1987
1992
1998
1972
LICENCIAS
PAGADAS AL EXT.
License Payments
1977
1982
1987
1992
1998
CRECIMIENTO PER CAPITA (eje derech
Fuente: Maloney (2004)
But Spain, Italy and Portugal
follow a different path.
2
0.10
2
0.10
ESPAÑA
CHILE
Chile
Spain
1
0.05
1
0.05
0
0.00
0
0.00
-1
-0.05 -1
-0.05
-2
-0.10 -2
-0.10
1972
IED
FDI
1977
1982
I+D
R&D
1987
1992
1998
LICENCIAS
PAGADAS AL EXT.
License
Payments
1972
1977
1982
1987
1992
1998
CRECIMIENTO PER CAPITA (eje derecho)
FIN