Innovation and Competitiveness: A WBI Perspective Carl Dahlman ECA Innovation and Competitiveness Workshop World Bank Institute - PowerPoint PPT Presentation

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Innovation and Competitiveness: A WBI Perspective Carl Dahlman ECA Innovation and Competitiveness Workshop World Bank Institute. February 18,2004. Structure of Presentation. Knowledge and Growth in Historical Perspective The Knowledge Revolution Implications for Developing Countries

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Innovation and Competitiveness: A WBI Perspective Carl Dahlman ECA Innovation and Competitiveness Workshop World Bank Institute

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Innovation and Competitiveness:A WBI PerspectiveCarl DahlmanECA Innovation and Competitiveness WorkshopWorld Bank Institute

February 18,2004


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Structure of Presentation

  • Knowledge and Growth in Historical Perspective

  • The Knowledge Revolution

  • Implications for Developing Countries

  • High Growth Performance and Knowledge Strategies

  • Benchmarking the World Knowledge Economy

  • Innovation in Developing Countries

  • Challenges to Developing Countries

  • Challenges to World Bank

©Knowledge for Development, WBI


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World GDP/Capita and Population

©Knowledge for Development, WBI


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Growing Differences in GDP/Capita


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GDP/Capita Growth: Korea vs Ghana

©Knowledge for Development, WBI


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Puzzle and Challenge

  • Puzzle: If it is so obvious that the effective use of knowledge is such an essential element of development,mwhy hasn’t it made a central focus of development strategy and advice?

  • Challenge: What do we need to do to bring it to the mainstream and how can we prepare Bank to provide relevant advice.


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New Growth Patterns

  • In last decade there has been renewed interest in growth because:

    • Micro level evidence of increasing importance of new technologies

      • ICT revolution

      • Increased share of high tech products in exports

      • Managerial and organizational changes

    • Macro level evidence of changes of patterns and nature of growth among OECD countries

      • Surprisingly strong growth of US economy 1995-2002

      • Reversal of trend towards convergence of per capita income among OECD countries.

  • This has lead to focus on “new economy” to understand what is going on


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The Knowledge Revolution and “The New Economy”

  • Ability to create, access and use knowledge is becoming fundamental determinant of global competitiveness

  • Seven key elements of “Knowledge Revolution”

    • Increased codification of knowledge and development of new technologies

    • Closer links with science base/increased rate of innovation/shorter product life cycles

    • Increased importance of education & up-skilling of labor force, and life-long learning

    • Investment in Intangibles (R&D,education, software) greater than half of machinery & equipment investments in OECD.

©Knowledge for Development, WBI


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The Knowledge Revolution -2

  • Greater value added now comes from investment in intangibles such as branding, marketing, distribution, information management

  • Innovation and productivity increase more important in competitiveness & GDP growth

  • Increased Globalization and Competition

    • Trade/GDP from 38% in 1990 to 52% in 1999

    • Value added by TNCs 27% of global GDP

  • Bottom Line: Constant Change and Competition Implies Need for Constant Restructuring and Upgrading

  • ©Knowledge for Development, WBI


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    Changing Structure of Manufactured Exports Toward High Tech. Products in OECD

    • High technology industries increased from 18.8% in 1990 to 25.3% in 1999

    • Medium high technology industries increased from 38.7% to 39.1%

    • Medium low technology industries decreased from 17.9% to 14.1% and

    • Low technology industries decreased from 24.3% to 21.3%

      Therefore roughly 2/3rds of manufactured exports from the OECD countries is high or medium technology


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    Implications for Developing Countries

    • The knowledge revolution is being led by the industrialized countries

    • Developing countries run risk of being left further behind.

    • There is also trend towards rising inequality with-in both developed and developing countries

    • Developing countries need to develop explicit strategies to take advantage of knowledge revolution to improve their competitiveness

      • Improve performance of traditional sectors

      • Leapfrog technologies

      • Develop new sectors

      • Address problems of increasing internal inequalities


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    Eight Fastest Growing Economies

    (constant 1995 US$)

    ©Knowledge for Development, WBI


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    Few Countries Have Sustained High Growth Rates over Long Periods

    • Most of these countries are or were until recently developing countries

    • They have followed successful knowledge strategies

    • Key elements of those strategies, in addition to appropriate macroeconomic management and good economic incentive regimes have been:

      • Massively tapping into global knowledge

      • Investing strongly in education

      • And now investing heavily in ICT


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    To Help Developing Countries to this the World Bank has Knowledge for Development Program

    • Policy Forums, Policy Conferences, Seminars, and Training on K4D

    • Policy Services on K4D, ranging from full fledged reports to customized policy notes

    • KAM Web-based tool on country knowledge assessments (do-it-yourself analysis) www1.worldbank.org/gdln/kam.htm

    • K4D Community of Practice www.K4DCommunity.org


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    Framework for Using K4D:Four Key Functional Areas

    • Economic incentive and institutional regime that provides incentives for the efficient use of existing and new knowledge and the flourishing of entrepreneurship

    • Educated, creative and skilled people

    • Dynamic information infrastructure

    • Effective national innovation system

    ©Knowledge for Development, WBI


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    KAM Methodology

    • KAM: 76 structural/qualitative variables to benchmark performance on 4 pillars

    • Variables normalized from 0 (worst) to 10 (best) for 121 countries

    • www1.worldbank.org/gdln/kam.htm

    • Basic scorecard for 14 variables at two points in time, 1995 and 2002

    • Aggregate knowledge economy index (KEI)

    • Will illustrate with quick analysis of Slovakia

    ©Knowledge for Development, WBI


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    Armenia

    • INNOVATION:

    • Researchers in R&D / mil pop

    • Patents granted by USPTO / mil

    • Scient. & Tech.

    • Publications / mil pop.

    • ECON. INCENTIVE REGIME:

    • Tariff & Non-tariff barriers

    • Rule of Law

    • Regulatory Quality

    • INFORMATION INFR.:

    • Tel. Lines per 1,000 people

    • Computers per 1,000 people

    • Internet users per 10,000 people

    • EDUCATION:

    • Adult literacy rate

    • Secondary Enrollment

    • Tertiary Enrollment

    Armenia

    ©Knowledge for Development, WBI


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    ECA & the World: Knowledge Economy Index

    ©Knowledge for Development, WBI


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    ECA & the World: Innovation

    ©Knowledge for Development, WBI


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    ECA & the World: Innovation (absolute values)

    ©Knowledge for Development, WBI


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    New Area of Focus: Innovation Policy and Strategy

    • Conceptual framework for innovation in context of developing countries

    • Benchmarking countries in terms of their knowledge capabilities

    • Developing policy toolkit for policy advice in different archetypes of countries


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    Conceptual Framework for Innovation in Developing Countries

    • Innovation in developing countries should be understood broadly as something new to the local environment

    • Therefore distinguish two broad types of innovation

      • Local improvements through adoption of existing foreign technology

      • Development of technologies new to world


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    Innovation in Developing Countries

    • In developing countries the first type is the most relevant, the second is more rare, except for the most advanced developing countries

      • Developing countries will get a bigger economic impact from raising average local practice to best world practice than from creation of their own new knowledge

      • They will also get a bigger impact from raising average local practice to best local practice, therefore the tremendous importance of domestic diffusion


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    Sources of Domestic Innovation

    • Imports of capital goods, components, products or services

    • Products and services brought to and produced in country by foreign investors

    • Copying or reverse engineering of foreign products and services

    • Technological efforts of domestic or foreign firms, not all of which is based on formal R&D


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    Bias Towards Formal R&D Efforts

    • Policy makers in developing countries tend to focus on formal R&D and on publicly funded research efforts

    • They tend to focus on glamorous high technology sectors

    • They tend to focus on industry, to a lesser extent on agriculture, and very little on services

    • They also tend to focus on R&D inputs and outputs, not so much on entrepreneurship and management


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    Challenges

    • But, as noted earlier, focus of policymakers are not the most important elements of the innovation system in developing countries

      • R&D not the main source of innovation

      • High tech sectors are tiny part of developing economies

      • Service sector is largest share of economic activity

      • Successfully applying knowledge requires entrepreneurship, management, organizations,and also depends on economic and institutional regime

    • Need a better conceptual framework and policy tool kit that

      • differentiates across countries

      • Provides made to measure policy advice and specific project design


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    Benchmarking Countries in Terms of Knowledge Capabilities

    • Education and skills

    • Acquiring Knowledge

    • Creating Knowledge

    • Disseminating Knowledge

    • Applying Knowledge


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    Differentiated Strategies


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    National Innovation System

    • Needs to include not just R&D institutions and universities, but most critically firms and other knowledge institutions

    • Needs to include attention to the broader economic incentive and institutional regime, education and skills, and ICT-hence our K4D framework


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    Challenges to Developing Countries

    • Finding advantageous ways to plug into and compete successfully in the global system

      • Getting into global value chains

      • Moving up these value chains

    • Taking advantage of global knowledge to improve welfare

      • Preventive health

      • Agriculture

    • Developing differentiated advantages

      • Building on local resources

      • Building on culture and other intangibles

      • Strengthening non-traded services


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    Challenges to World Bank

    • How to strengthen analytical capability on innovation and growth

    • How to integrate this element into mainstream of Bank work: CAS, PRSPs, etc

    • How to learn from our experience and tha of others to design appropriate policy recommendations and project interventions for countries with different endowments and at different levels of development

    • How to develop appropriate skill mix and incentive mechanisms break down internal silos to be able to deliver on these complex projects.

    • How to break down the silos in our clients


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