Structural Transformation and Innovation Systems: industrial dynamics and innovation systems a value

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Structural Transformation and Innovation Systems
industrial dynamics and innovation systems (a
value added approach)

• Prof. Luciano G. Coutinho
• Prof. Mariano Laplane
• NEIT/IE - UNICAMP

Globelics BRICS Workshop Aalborg February 2006
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BRICS portrait population, area, density, total
and per capita domestic product
3
BRICS and selected countries Gini index/ social
unequality
Source UNDP

• Is the highly unevenly distributed income a
  serious development problem for Brazil and South
  Africa? Is China increasing social unequality a
  problem for the future?

4
BRICS growth performance in the last 25 years as
well known...

• China is the worlds fastest growing economy in
  the last 25 years, with a very high investment
  rate
• Brazils economy has shown an irregular and
  mediocre performance, well bellow its potential
• India since the nineties GDP is growing quite
  well and more regularly however it can do better
• Russia after the deep crisis of the nineties
  (disorganization of the state-socialist economy)
  oil prices have helped an economic recovery

5
BRICS growth performance in the last 25 years as
well known...

• South Africa GDP growth performance has improved
  slowly, however well bellow its potential as
  investment lags behind
• Korea GDP growth is high in per-capita terms and
  its per-capita income has approached the level of
  a developed economy
• Mexico plugged to the US economy it shows a
  relatively weak performance, below its potential

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Annual average growth rates of total real GDP ()
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BRICS gross fixed capital formation ( GDP),
1970-2003
Source NEIT-IE-UNICAMP from BIRDs World
Development indicators
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Industrial performance and growth

• China spectacular GDP growth is certainly
  related to the high competitiveness of its
  manufacturing system
• Brazil, Russia, South Africa manufacturing has
  lost relative importance and weight
  international competitiveness has faltered
• India manufacturing has grown, on average, at
  the same pace of GDP

Question is an improvement of manufacturings
competitiveness an important factor for long term
growth?
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BRICS manufacturing value added ( GDP), 1993
and 2003
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Growth and competitiveness

• East-Asian economies have grabbed an additional
  13 percentage points of world trade in the last
  25 years
• Chinas performance is, by far, the more dynamic
• Brazils share of world exports has stagnated
  (with a slight recent improvement)
• India has also shown some moderate improvement
  from a low start basis
• South Africa has lost relative importance in
  world exports
• Russias recent improvement related to oil and
  gas price boom

Apparently, global competitiveness has been a
key factor for fast growth
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Evolution of market share of world merchandise
exports
Value of Exports
Country
1980
1990
2003
2004
Developed Countries
65,3
72,0
64,8
63,1
Developing Countries
29,5
24,3
32,1
33,5
. Latin America Caribbean
5,5
4,1
5,0
5,1
. Brazil
1,0
0,9
1,0
1,1
. Mexico
0,9
1,2
2,2
2,1
. Developing Asia
18,0
16,9
24,7
25,8
. West Asia
9,9
3,9
4,1
4,4
. Russia
-
-
1,8
2,0
. South Asia
0,7
0,8
1,1
1,1
. India
0,4
0,5
0,8
0,8
. East Asia
7,1
12,0
19,4
20,1
. China
0,9
1,8
5,8
6,4
. Rep. of Korea
0,9
1,9
2,6
2,8
. Africa
5,9
3,2
2,4
2,5
.South Africa
1,3
0,7
0,5
0,5
Memo PED's excl. first-tier NIEs and China
24,8
14,8
16,8
17,4
Source UNCTAD
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BRICS share in world manufacturing value added
(1993-2003)

• China has doubled its share in global
  manufacturing (in value added terms)
• Indias manufacturing share grew but its relative
  size is yet small
• Brazil and Russia their manufacturing systems
  have lost share in the world economy however
  some improvement is taking place after 2003
• South Africas share in global manufacturing has
  stagnated

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BRICS and selected countries share in world
manufactured value added, 1993 and 2003
Source UNIDO
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BRICS manufactured value added per capita (95
constant US), 1993 and 2003
The evolution of manufacturing productivity seems
to be in line with overall growth performance in
manufacturing
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• Competitiveness in manufacturing high tech
  products seems to be a relevant driver of fast
  growth and yet an even more important factor for
  a strong export record
• China has almost quadrupled its share of worlds
  high tech production. It has surpassed Korea and
  is now equivalent to Japan!
• India has shown important advance but her share
  in high tech products is still small
• Brazil and Russia have shown a stagnant
  performance in worlds manufacturing of high tech
  products
• South Africas presence in high tech is quite
  small

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BRICS and selected countries share in world
high-tech products exports (), 1993 and 2003
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BRICS and selected countries high-tech products
share in countries total exports (), 1993 and
2003
Source NEIT-IE-UNICAMP from UNCTAD primary data
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Growing importance of high-tech sectors in
Chinas economy (two tunnels strategy)

• Chinas industrial system has diversified
  extraordinarily in the last 25 years it has a
  very large intermediate goods base (steel,
  cement, petrochemicals) and a very large
  non-durable consumption goods sector. In recent
  years the development of durable consumption
  goods and of high-tech sectors (computers,
  consumer electronics, etc.) has speeded up
• High-tech products already accounts for 36 of
  Chinese exports (2005)
• Employment in high-tech sectors is growing fast
  and has accounted for 19 of the total in 2002

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Growing importance of high-tech sectors in
Chinas economy (two tunnels strategy)

• China has escalated RD expenditures from 0,6 of
  GDP in the mid nineties to almost 1,9 last year
• Enrollment in high education (specially in
  engineering) has expanded very rapidly, as well
  as students pursuing graduate studies abroad
  (circa 150 thousand)
• Chinas recent record in global patent
  applications is impressive

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China manufacturing employment ( total
manufacturing employment), 2002
Rubber and Plastics products

Source UNIDO
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Selected countries RD expenditures (/GDP),
1996 and 2001
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Selected countries enrollment in high education
as a of the total, 1990 and 2000
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BRICS and selected countries stock of patent
applications, residents, 2001
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Comparison of manufacturing structures

• Whereas the share of high-tech sectors in
  manufacturing (value added) ranges between 14
  and 17 (automotive-complex included) in Brazil,
  Russia, India and South Africa it has attained
  circa 35 in the case of China
• By the same token, employment in high-tech
  sectors varies around 8,5 of the total
  manufacturing employment (for Brazil, Russia,
  India and South Africa) whereas in China it
  represents 19
• If the automotive-complex is excluded the share
  of employment in high-tech sector (to Brazil,
  Russia, India and South Africa) would vary from
  2,6 to 5,5 of the total

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Comparison of manufacturing structures

• Relative shares of so-called traditional
  consumer-goods manufacturing (e.g. food and
  beverages, tobacco, textiles and wearing apparel,
  leather products and footware) are higher in
  Brazil, India, Russia and South Africa
• On the other hand, the relative shares of natural
  resource-based and of primary commodity-based
  manufacturing is quite different among the BRICS,
  reflecting different geography and natural
  endownments

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BRICS manufacturing structure (share in
countries MVA), 2002
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BRICS manufacturing employment ( total
manufacturing employment), 2002
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Different manufacturing profiles

• Russia a very strong defense-related industrial
  complex, specially in aeronautics space a
  large production-base in non-electric machinery
  and equipment a powerful manufacturing complex
  related to oil and gas
• Brazil a broad set of competitive
  natural-resource-based and agricultural-based
  manufacturing (steel, non ferrous metals, pulp
  and paper, wood products, sugar and ethanol,
  orange juice, soya-derivates, coffee) a fairly
  diversified durable-consumption goods industry
  one leading firm in the aeronautic sector

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Different manufacturing profiles

• India a very large service-economy, her
  manufacturing capability is relatively small and
  concentrated in basic non-durable consumption
  goods (textiles and wearing apparel, food and
  beverages) with the exception of a strong
  chemical and chemical products-complex the base
  of intermediate goods production is relatively
  small, as well as the automotive-complex
• South Africa has a powerful mineral
  resource-based industry (steel and non-ferrous
  metals) and her manufacturing system is
  concentrated in non-durable consumption goods
  (food and beverages, tobacco, textiles and
  apparel) relatively strong in the automotive
  sector

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Innovation and ST Systems

• Russia strong position in high education, with a
  powerful scientific system particularly dedicated
  to space and defense-related activities
  expanding RD expenditures and patent activities
  are related to the former specializations
• India an expanding scientific system with good
  quality but very weak in industrial RD (and
  patenting) employment of highly qualified human
  resources biased towards services (IT related)
• Brazil an improving scientific system (with good
  international rating) RD activities are very
  uneven and concentrated, with some success cases
  (like in agribusiness) patent activity is weak
  some key sectoral innovation systems have been
  disintegrated in the nineties

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Innovation and ST Systems

• South Africa very weak RD and industrial
  innovation activities limited scientific
  capability
• China a remarkable effort in building up a
  national scientific and technological innovation
  system as a purposeful strategy RD activities
  growing at a very fast pace given the increasing
  economic importance of high-tech sectors

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BRICS recent export performance with remarkable
improvement of foreign exchange position

• Chinas large trade surplus derived from her
  highly competitive performance in manufacturing
  exports and
• Very favourable terms of trade (prices of oil,
  metals and other commodities) in last three years
  have helped Brazil, South Africa, Russia and
  India to strengthen their foreign exchange
  position

Question could this recently gained foreign
exchange robustness help to put in place new
national development strategies? Or could it
result in indulgence (in relation to current
performance and to the historical record)?
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Recent external robustness
Reserves/external debt ()
External debt/exports ()
Source JP Morgan, Consensus Forecasts and
projections.
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Recent external robustness
External debt service/exports
Source JP Morgan, Consensus Forecasts and
projections.
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Are there domestic financial constraints?

• Brazil and Russia their banking systems had
  retracted but can they expand in order to finance
  capital formation? How can the capital market
  help?
• Issues how to create reliable institutional
  conditions and juridical protection for
  investors, creditors and for securitized
  assets?
• China how to cope with the low risk-standards of
  the banking system? Is there a role for the
  capital market?
• India how to enhance the contributions of both
  (bank credit and capital market)?
• South Africa is everything fine? What is lacking
  to accelerate private investment?

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Financial Structure outstanding domestic debt
securities, stock market capitalization and bank
credit, 2004
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Outstanding Domestic Corporate Debt (Securities)
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Some lessons and questions for research

• There is not a single development model to be
  mimetized. The Chinese model may elicit many
  useful lessons but cannot be automatically
  copied. An interesting view-point how did the
  Chinese successfully copied many of the Korean
  strategies (of the 70s and 80s)?
• The strengthening of competitiveness and
  innovation in manufacturing seems to be a
  necessary condition for a better long term growth
  performance

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Some lessons and questions for research

• Keeping up and developing new competitive
  conditions in low and medium tech intensive
  sectors, such as to allow for dynamic trade
  performances and for the creation of employment
  opportunities, seems to be a wise strategy for
  BRICS
• Innovation (including DUI and STI modes),
  education and skill-apprenticeship (thru
  experience and thru training) should be a key
  focus for promotion of local development, as
  sub-regional promotion policies seem absolutely
  prioritary to BRICS efforts to reduce social and
  regional unequality

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Some lessons and questions for research

• How to take advantage of existing capabilities
  and of revealed competitive (sub-sector/niche)
  activities to capture dynamic potential of the
  high-tech sectors? In other words, how to build
  up from existing competitive advantage (however
  scarce) in high-tech?
• How to take full advantage of the ICT-revolution
  as smart users/adaptors (to the rest of the
  economy)? How to avoid the risks of
  info-exclusion?
• How to capture/explore new opportunities in
  activities/niches/services related to ICT waves?
  How to create some fundamental conditions (what
  are they?) in order to minimize policy-risks?

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Some lessons and questions for research
macro-questions

• Are the fundamental macroeconomic conditions
  ready for building up a new national development
  strategy? From the outlook of the
  foreign-exchange position the answer seems to be
  yes, but how about the fiscal and financial
  conditions?
• Are there sufficient political and societal
  aspiration and cohesion around a new (potential)
  development strategy? Is such national strategy
  consistent and clear enough?
• What are the critical challenges to be surpassed
  in order to reach it?