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Globalization and Technology Absorption in Eastern Europe and the Former Soviet Union. Pradeep Mitra Chief Economist Europe and Central Asia Region World Bank

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globalization and technology absorption in eastern europe and the former soviet union

Globalization and Technology Absorption in Eastern Europe and the Former Soviet Union

Pradeep Mitra

Chief Economist

Europe and Central Asia Region

World Bank

Presentation at the plenary session of the conference on “Economic Modernization and Globalization” at the State University Higher School of Economics

Moscow, April 1, 2008

technological progress is at the heart of income growth and poverty reduction

Per capita income growth

TFP growth

Technological progress is at the heart of income growth and poverty reduction

Average annual per capita income and total factor productivity growth,1990-2005

* Data for Europe & Central Asia cover period 2005/1995

Source: World Bank, Poncet 2006

technology gap narrowing but still wide
Technology gap: narrowing but still wide

Index of technological achievement

1990s

2000s

Source: World Bank, Global Economic Prospects (2008)

diffusion across countries has accelerated but penetration within countries remains weak
Diffusion across countries has accelerated but penetration within countries remains weak

Years to diffuse,

% countries at 25% threshold

Source: World Bank using CHAT database (Comin & Hobijn, 2004)

slide5

Technological progress in developing and transition countries is mainly about absorbing and adopting technologies developed elsewhere. Trade, FDI and international co-invention are channels for innovation and knowledge absorption.

Exposure to foreign technology

+

Capacity to absorb

=

Technological progress

Source: Globalization and Knowledge Absorption in ECA (World Bank,2008), Global Economic Prospects (World Bank, 2008)

slide6

Foreign Direct Investment Helped EU New Member States Participate in Producer-driven Global Commodity Chains and Export Skilled Labor and Capital-Intensive Products.

Source: UN COMTRADE and IMF International Financial Statistics Database.

slide7

The structure of finance for fixed investment reflects greater reliance on retained earnings and banks at the expense of family/informal and other sources – a maturation of the business and financial sectors in the transition economies.

The Structure of Finance for Fixed Investment Is Maturing but Has Not Converged to That in Developed Economies

Source: Mitra, Muravyev, and Schaffer 2008, “Convergence in Institutions and Market Outcomes: Cross-country and Time-series Evidence from the BEEPS Surveys in Transition Countries.” World Bank, Washington, D.C.

slide8

Scores in science and mathematics in PISA 2006 were comparable to the OECD average in the countries that acceded to the European Union in 2004 and lower elsewhere.

Source: OECD PISA 2006

slide9

Inventions in the ECA 7 countries received more U.S. patent grants than did investors in China and India until the most recent years. However, there is a clear acceleration in India and China-based patenting in recent years.

U.S. Patent Grants for the ECA7 vs. China and India

Source: Authors’ calculations based on the U.S. Patent and Trademark Office CASSIS CD-ROM, December 2006 version. The graph compares counts of patents in which at least one inventor is based in one of seven ECA countries, India, or the People’s Republic of China. The ECA 7 are Russia, Hungary, Poland, Slovenia, the Czech Republic, Bulgaria, and the Ukraine.

slide10

International co-invention (ECA 7 patent grants generated by international teams of inventors) has expanded greatly compared to purely indigenous patents (ECA 7 patent grants generated by inventors based within a single country).

Indigenous Patents and Co-Inventions in the ECA 7, 1993-2006

Source: Authors’ calculations based on the U.S. Patent and Trademark Office CASSIS CD-ROM, December 2006 version. The ECA 7 are Russia, Hungary, Poland, Slovenia, the Czech Republic, Bulgaria, and the Ukraine.

conclusions
Conclusions
  • Trade, foreign direct investment and international co-invention are channels for innovation and knowledge absorption in the global economy;
  • The effectiveness of those channels depends on a country’s business environment, viz., the state of competition, financial depth, governance, skills and infrastructure;
  • The EU new member states are deeply integrated into FDI-enabled network trade;
  • The structure of finance is maturing in Eastern Europe and the former Soviet Union. Countries which joined the EU in 2004 scored near the OECD average in the 2006 PISA in science and mathematics but other transition countries are doing less well;
  • Patents granted through international co-inventions have become increasingly important compared to purely indigenous patents and are more connected to global R&D trends.
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