Lessons from 10 successful cases of export diversification

1. Lessons from 10 successful cases of export diversification Vandana Chandra, PRMED Presentation for the Innovation & Economic Growth session PREM Learning Week April 26, 2005 MC6-W150

2. Why does technological adaptation/innovation matter ? • Leap-frog to increase productivity and maintain it - necessary for sustained growth • Catch-up in global competitiveness – necessary for export diversification and growth • Necessary for entry/hooking up with global supply chains –either in the export game or out of it • Equally necessary for development of domestic markets – if you cannot export, it is difficult to compete with imports at home

3. What do we know about technological adaptation/innovation? • Historically, the main driver of growth in the developed countries; since the past 50 years, in some developing countries • Contribution is well documented – TFP growth regressions (Solow growth residuals and their modifications); • Input approach to innovation – R&D, patents, scientists, property rights, education etc.. • Policy perspective requires an output-driven approach – hard measures to gauge whether it is working

4. Measuring innovative effort( borrowed from Maloney, 2004 ) • Adaptation/Innovation has opportunity costs- are we doing too little? Too much? • Theoretically, clear market failures but • How large are they? and • Are they larger than government failures? • Letting the interventionist gini out of the bottle? Or have we gone too far in getting government out of everything? • Most benchmarking techniques to date are questionable • Focus on quality vs. quantity? • Our study – innovation is not an end in itself – must lead to economic and export diversification and growth

5. 5 "The 'How To' of Technological Change for Faster Economic Growth" • Examine 10 successful cases to understand how technology played a key role & why the sector grew so rapidly • Not innovation – rather adaptation/adoption of superior technologies of production – late-comer or second mover advantage was exploited • Measured in a visible increase in global export share, sustained and faster growth

6. 6 Diverse countries and sectors • India – from maize to poultry –crops, poultry farming and meat processing • Chile – table grapes to wine • India – table grapes ……wine!! • Chile – salmon farming and processing • Uganda – Nile perch – frozen and processing • Kenya – cut flowers • Malaysia – oil palm to oleo chemicals • Taiwan – high-end electronics • Malaysia – low-end electronics • India – software-IT

7. 7 What is technological catch-up? • Building technological capabilities – ability to acquire, adapt and disseminate technologies - “a mixture of information, skills, interactions and routines to handle tacit aspects of technology” (Lall 2003, p.15 ). • Learning is essential - all technologies are not embodied in machinery, equipment, even FDI, or consultants • Disembodied tacit knowledge has to be developed – all countries have access to the same technologies – but do not adapt uniformly • Technological up-gradation to keep up with developed countries – dynamic competitiveness – other factors are equally important • Public goods – needs special attention – every developed country government has played a facilitative role

8. What is required for technological catch up? • Investment capabilities -knowledge & skills required for evaluating various investment opportunities • Production - choosing appropriate technologies, designing and commissioning of projects • Learning capabilities - mechanisms that enable firms to change the stock of investment & production capabilities (Biggs et al, 1995) • Two stages: technological mastery (simple production techniques) and technology deepening (complex and higher value tasks ) (Lall, 2003) • Institutions have a central role to play • Need social, industrial and technology policies to actively promote learning (Kim &Nelson 2000; Freeman 2002)

9. Building national (local firm) capabilities… • New global trading environment – natural low labor cost advantage is temporary • FDI does not necessarily build local firm capabilities (example LAC) – here today, gone tomorrow • Crux – building acquired competitive advantage in local firms for sustained investment and growth • Public polices – a system of incentives and rules implemented by public or public-private institutions to support a non-market system of inter-firm networking and linkages • Objective: enable private firms to use better technologies, increase productivity & competitiveness – enabling role of government

10. Typology of cases • Natural resource-based: resources provide a significant advantage in production, potentially limit competition in some cases—floriculture in Kenya, Nile Perch fishery in Uganda, salmon farming in Chile, and wine in Chile • Natural resource-based, but they do not provide a significant advantage—maize and grapes in India, and oil palm in Malaysia • Physical and human capital based—electronics in Malaysia and Taiwan and software in India • Maize & grapes in India, and oil palm in Malaysia - involve production by small producers • Grape exports from India - to gain entry into quality conscious developed markets • Pro-active public sector – Taiwan, Malaysia (oil palm), India, Chile (salmon); Re-active public sector – Uganda, Kenya,Malaysian electronics; both – Indian IT

11. What was the nature of the technological adaptation or upgrading in the 10 cases? Note the large variation in technological learning and complexity of tasks and practices

20. Ingredients of the “how to”

29. Explaining the process of technological adaptation • National vision; political commitment • Macroeconomic stability • Appropriate institutions to coordinate, monitor and evaluate • Infrastructure • EPZs or their prototypes; clusters; • Skills – managerial and technical, diaspora (?) • Finance, credit, other fiscal incentives, FDI • System that supports technological adaptation – links innovators in universities, think-tanks with firms (local and foreign) and governments • International promotion – information systems, advertising, national name brand

30. Direct interventions by the public sector • Restrictive policies – Taiwan on FDI, Uganda’s ban on exports of unprocessed fish, Malaysia’s taxes on crude palm oil exports • Direct promotion • Seeding of new firms – Taiwan, Chile • Support to develop new markets and acquire technologies – Indian grapes; Chilean wine, Salmon • Support to build industry organizations – Chilean wine, Kenya floriculture • Crop development – Malaysia oil palm; Indian maize • Clusters, parks – Taiwan; India – IT and wine; Malaysia (Penang) • Wooing the diaspora - Taiwan

31. Channels for catching-up • Foreign direct investments – Malaysia, Taiwan, Kenya • Direct investment by MNCs in production of inputs – maize seeds in India, flowers in Kenya, salmon food in Chile • Licensing agreements- Taiwan • Capital good imports – electronics, IT, oil palm trees & processing equip, refrigerators for grapes, salmon food & fish tanks in Chile, wine barrels in Chile, green house tents in Kenya • Local adaptation or development – Indian software and grapes, Kenyan flowers, Chilean salmon and wine, • Contracts and consultants – Nile perch buyers, Kenyan flower buyers, grape producers learn from wine producers, wine producers learn from international buyers, Ugandan fish farmers learn from fish firms • Formal research and development – Taiwan; maize; IT • Local research was not useful – grapes in India, fishery in Uganda, wine and salmon in Chile; so used other means of technology transfer

32. Role of the public sector

33. Outcomes