Transcript Does Lisbon work for Croatia?

Lisbon and Croatia
Does Lisbon work for Croatia?
with an emphasis on innovation
Arjan Lejour
prepared for the international conference 2008 on innovation,
competitiveness and growth
Partly based on background paper prepared for the World Bank
Report Croatia --EU Convergence
Zagreb, 27 11- 2008
Lisbon and Croatia
Introduction
Zagreb, 27 11- 2008
 Focus on Croatia and Lisbon reforms
 Capture question 1: In what ways do human
capital accumulation and innovation
development contribute to economic growth?
 Macro perspective
 Broad picture: not specific on micro issues
barrieres to innovation etc.
 Applied work: CGE model WorldScan
Conclusion
Lisbon and Croatia
 Lisbon matters for Croatia: If R&D targets are
reached: 6% increase in GDP.
► Only employment target delivers (much) more
► Be careful: “What if analysis”
► But message is clear: big benefits ahead!
 Policy message: wait not for EU accession,
own reform policies pay off
► But joint forces may help for innovation and R&D:
► Croatia could benefit substantially from spillovers
 Policy message: improve transmission
channels for spillovers
Zagreb, 27 11- 2008
► More trade and FDI.
► Quarantee absorptive capacity
Lisbon and Croatia
Economic growth
 Y = F( A, L, K)
 GDP (Y) is a function (F) of TFP (A) Labour (L)
and Capital (K)
 Labour is split in low (L) and high-skilled (H)
 Capital is split in R&D stock and a capital stock
 A is a function of
► R&D spillovers from abroad,
► level of regulation and competition
► Technology
► …..and other factors
Zagreb, 27 11- 2008
What Lisbon does is
 Raising A through
Lisbon and Croatia
► Improving internal market,
Zagreb, 27 11- 2008
► Reducing adminstrative burden,
► less regulation,
► and through foreign spillovers.
 Raising L through employment target
 Raising H through
► scholing and on the job training
► increasing employment
 Raising R through increasing R&D expenditure
 K also affected by measures like venture
capital
What it could deliver!
18
Lisbon and Croatia
16
14
12
10
8
6
4
Zagreb, 27 11- 2008
2
0
Employment
Human capital
IM services
Adm. Burden
R&D
Seeds for innovation in Croatia
Lisbon and Croatia
 Doctorate students in science and technology
fields – 0.06% in Croatia, 0.26% in EU27
► Total (% of the population aged 20-29)
 In graduate ST 13 per 1000 in EU and 6 per
1000 in Croatia
 Employment in KIBS EU 33% Croatia 23%
 Employment in high tech sectors EU 6.6%
Croatia 4.7%
 Miss numbers on broader innovation indicators
► except on R&D
Zagreb, 27 11- 2008
 Source: Eurostat
Lisbon and Croatia
R&D expenditures in 2006,
selected countries (% GDP)
Zagreb, 27 11- 2008
Sweden
Finland
Germany
Belgium
France
Austria
EU
Netherla
UK
Italy
Spain
Croatia
Hungary
Poland
US
0
1
2
3
4
Framework: WorldScan
Lisbon and Croatia
 General equilibrium and micro foundations
 Interaction: markets, countries and sectors
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► 26 countries, 10 sectors
 Imperfect competition in products markets
► Free entry and exit
 Dynamic (recursive) model
 Econometrically underpinned
► consumer demand, savings, capital mobility,
R&D spillovers
Lisbon and Croatia
R&D in WorldScan




R&D expenditures cumulate in R&D stock
Firms decide on optimal R&D stock
R&D produced in separate R&D sector
Estimated R&D spillovers in productivity
► own sector
► other sectors
► foreign sectors
 Social return to R&D set at 25%
► Lower end of econometric estimates
 R&D intensity falls in baseline
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► services economy
► larger share of new member states
R&D simulations
 Target: EU expenditure at 2.7% GDP in 2015
Lisbon and Croatia
► Country: target in national action plans are used.
Zagreb, 27 11- 2008
► Proportional increase in R&D stock: 2025
► After 2025: falling R&D (services economy)
 Instrument: subsidy
► 3% expenditure target met over 2015-2025
► proportionally to R&D spending by sector
► A subsidy rate of 54% for Croatia in 2025 (1.8 bn US$)
 R&D stock more than doubles
Lisbon and Croatia
Outcomes
Zagreb, 27 11- 2008
 GDP increase by 6% (in line with new MS)
 High tech sector benefit most, but also other
manufacturing sectors
 Most tradable sectors, exports increase by
13%, improvement in competitiveness
 About 50% of this is due to productivity
spillovers from importing.
► for open economies even larger.
Spillovers for R&D policy
Lisbon and Croatia
6
5
4
3
2
1
SWE
SLV
SVK
NETH
Spillover
ITA
HUN
UK
Alone
FRA
FIN
ESP
DNK
DEU
CZR
BEL
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AUS
0
Qualifications
 No diminishing returns
Lisbon and Croatia
► Some countries: increase R&D stock 150 - 300%
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 Subsidy 100% effective
► no additionality problem
 No disincentives effects of taxation
 Ignore crowding out, scarcity of scientists
► Interaction skills and R&D target
 No other policy instruments
Increasing spillovers
Lisbon and Croatia
 Channels are trade, FDI, people
 Much FDI potential and trade
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► TI perception index is low (FDI)
► Transnationality index low (UNCTAD)
 Increase absorptive capacity
► human capital
► knowledge workers
► own R&D, at least public, emphasis on diffusion and
development.
Central and Eastern Europe:
openness (transnationality index)
Slovenia
Slovakia
Lisbon and Croatia
Poland
Lithuania
latvia
Hungary
Estonia
Czech Republic
Turkey
Serbia
Romania
Macedonia
Croatia
Bulgaria
Bosnia
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Albania
0
10
20
30
40
50
60
Transparency (TI corruption
index, 2006)
Estonia
Slovenia
Hungary
Lisbon and Croatia
Italy
Lithuania
Czech Republic
Slovakia
Latvia
Bulgaria
Turkey
Poland
Croatia
Romania
Serbia
Bosnia and Herzgegovina
Macedonia
Zagreb, 27 11- 2008
Albania
Russia
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Prospects
Lisbon and Croatia
 According to OECD FDI in SE Europe is below
its potential. Stocks could be 50%-80% higher
Zagreb, 27 11- 2008
► regulatory reform
► anti corruption
► tax administration
 Trade could increase substantially:
► accession to EU’s Internal Market
► including new IM policy initiatives
► better institutions
Conclusion
Lisbon and Croatia
 Lisbon matters for Croatia: If R&D targets are
reached: 6% increase in GDP.
► Only employment target delivers (much) more
► Be careful: “What if analysis”
► But message is clear: big benefits ahead!
 Policy message: wait not for EU accession,
own reform policies pay off
► But joint forces may help for innovation and R&D:
► Croatia could benefit substantially from spillovers
 Policy message: improve transmission
channels for spillovers
Zagreb, 27 11- 2008
► More trade and FDI.
► Quarantee absorptive capacity
Lisbon and Croatia
Literature
Zagreb, 27 11- 2008
 The new Lisbon Strategy; An estimation of the
economic impact of reaching five Lisbon
Targets (CPB Document 104)
 International spillovers of domestic reforms:
the joint application of the Lisbon Strategy in
the EU, (CPB DP 105)
 forthcoming background paper prepared for
the World Bank Report Croatia --EU
Convergence.
 The economic effects of Croatia's accession to
the EU, (CPB document 154)
 FDI in Services: Recent Developments and
Prospects in Europe
 http://www.cpb.nl/eng/org/homepages/aml/