Transcript presentation - Armenian International Policy Research Group

Model of a Knowledge-Based Economy
for Armenia
Hayk L. Sargsyan, Yerevan State University
Kristine A. Antonyan, Yerevan State University
AIPRG Annual Conference “Looking Forward:
Global Competitiveness of the Armenian
Economy”,
May 17-18, 2008, Washington, DC.
purpose
То have a sustained long-run economic growth adopting
flexible economic policies in the new postindustrial society.
outline
I. Discuss long-run economic growth models with the
productivity as the central factor, outline the knowledge as
the main engine of productivity growth in a knowledge-based
economy.
II. Discuss Armenian economic growth in the transitional
period within qualitative indicators and TFP growth trend.
III. Decomposition of estimated TFP with Knowlede Economy
pillars, revealing the strenghts and weaknesses the country
has and emphasize the needed directions for policy towards a
knowledge-based economic model.
Long-run growth models theoretical
considerations
neoclassical growth theory: using exogenous production functions
revealed that the “Black box” residual is explained with capital
accumulation and hence technological progress, resulting to a
long-run sustained economic growth
endogenous growth theory:explained the driving growth of
productivity or the unexplained residual through the concept of
the human capital
R&D growth models: considered the driving development through
adoption of innovations by means of trade among countries:
qualitative transformations and structural change
Conclusion:
KE pillars
PRODUCTIVITY
OUTPUT
GROWTH
GROWTH
Industrial society
Physical capital
accumulation
Technologies
& Industrial Economy
Innovations
Postindustrial
society & KE
Human capital
accumulation
Institutions
Knowledge
Human capital
ICT
Education
infrastructure
Armenian economic growth is
accompanied with
1.The substitution of goods production and agriculture by services production
appropriates the global trends. Still, international comparisons indicate, that the
country appropriates to low income countries.
2. The growth in non-agricultural sector is characterized by labor productivity
growth (output per worker). Yet, it is mainly expounded with the permanent
decrease of employment rate during the whole transformation.
3. The poverty rate is high in the country (although, it has reduced from almost
half of the population to 26,5%)
4. The country is defined by unequal regional developments, mainly
concentrated in the capital.
5. Continuous migration especially among younger population still exists in
the country.
A(t )
6.
20
A(t  1)
 Y (t )
Y (t  1)
 a(t )K (t )
K (t  1)
 b(t )L(t )
L(t  1)
(1)
Picture 1. The TFP growth rate of RA in the period of
1992-2006
15
10
5
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
0
-5
-10
-15
Armenian economicic gowth is described with:
-Crisis (1991-1994)
-Stability (1994-2000)
- Improvement (2000-2006)
Table 2. The TFP decomposition through the KE
pillars. KEI of Armenia and Estonia
Armenia
Estonia
Estonia
(most
recent)
1995
(most
recent)
1995
1 pillar: Economic Incentive
and Institutional Regime
(average)
5.26
3.52
8.60
8.75
2 pillar: Innovation (average)
4.81
4.63
8.12
7.07
3 pillar:Education (average)
3.40
2.61
8.22
7.37
4 pillar: ICT (average)
2.44
3.71
9.24
9.17
Knowledge Economy Index
(average)
4.64
3.84
8.22
7.73
Variable
Armenia
Source: World Bank, KAM, URL//www.worldbank.org/kam
Conclusion
-In early transformational period, the crisis destroyed the
Armenian economy so much, that the TFP present growth
rates, calculated on low basic figures, do not assure a
competitive level of knowledge-based economy
-The growth is insufficient for being sustained
Education- the pillar of knowledge-based economy
A. Picture 2. Enrollment in education institutions by age
24
5%
8%
9%
22
22%
26%
31%
37%
20
18
46%
76%
16
93%
97%
96%
98%
99%
98%
97%
96%
95%
14
12
10
8
49%
6
32%
30%
4
0%
20%
40%
60%
80%
Source: NSS, Education Transitions in Armenia, UNDP, 2006
100%
120%
.
Higher education is rapidly becoming inaccessible for
the greater part of the population.
B. The quality of Education - the combination of the three
components - education inputs, educational process and outputs.
INPUTS
Financing
Internet at
schools
PROCESS
Basic education
process
Quality of
teachers
Selection of
lecturers,
students
Tertiary education
process
OUTPUTS
The level and
quantity of school
(middle-school, high
school, after-school)
graduates entering
labor market
The level and
quantity of school
(middle-school, high
school, after-school)
graduates continuing
studying
Conclusion:
Picture 3. . Employment by education degree
100%
80%
60%
with middle and elementary school education
with vehicle and basic education
40%
with higher education
20%
0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
The economic growth in Armenia is described with
worsening quality of the human capital (the portion of human
capital decreases in TFP)
Innovation- the pillar of knowledge-based economy
The main issues through several substantial indicators:
Public
National producers and
Expenditures on R&D
business environment
External financing
Researchers holding scientific degree, average age of researchers holding
scientific degree, average age of scientific equipment
Expenditures on Innovations
Innovative enterprises in industry
Innovative output in industry
The number of granted patents
Science-HEI-private institutions cooperation
Conclusion: estimating policy
Implications towards an Innovative economy
EXTERNAL
SHARE
Towards KE
STATE
NGOs
Internat
ional
organiz
ations
Esti
mati
ng
prior
ities
SCIENCE
EDUCATION
1. Venture
funds,
2. techno
parks
INNOVATION
ECONOMY
ICT- the pillar of knowledge-based economy
The main issues through several substantial indicators:
Provision of the population with home telephone sets, mobile
phones, successful calls
The number of Internet users, Internet access
The number of ISP, Internet prices
Phones, Computers, Internet accesses from workstation
E-commerce
Online government resources
E-governance
Conclusion: estimating policy
Implications towards a E-society
ICT infrastructure
social
economic
Information society
public
CONCLUSION
Decomposition of TFP growth estimates, that:
-The country has a comparative advantage in the factor of
human capital, which though is worsening
- The country has improved its competitiveness through
adopting new technologies, increasing the knowledge-based
potential of its productions and services
- ICT, as an infrastructure becoming the most important
pillar for a KE, is still on a low level in the country, thus
preventing economic competitiveness, productivity growth,
transformation to a KE and hence long-run sustained
economic growth
Long-run policy conclusions
- Encouraging “education, science and innovation” with new
strength and quality within a reconstruction of new “educationinnovation-economy” model, that will form a base for passing
to the third, innovative level of competitiveness,
- Transforming the “Book Society” to “E-Society”, within rapid
development of ICT infrastructure and its assimilation in the
social, public and economic aspects of life, such as ecommerce, e-governance, e-learning etc.
- Coordination the activities of different government institutions
and donor initiatives.