Tapping into Global Technology

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Tapping into Global Technology

• Adam Eddy Szirmai
• UNU-MERIT
• http//www.merit.unu.edu

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Sources for this presentation

• A.Szirmai, The Dynamics of Socio-Economic
  Development. An Introduction, Cambridge
  University Press, 2005 Chapter 3, Theories and
  Experiences, Chapter 4 Technology and
  Development, http//www.dynamicsofdevelopment.com
  
• J.Fagerberg and M.M. Godhinho, Innovation and
  Catching Up, in J. Fagerberg (ed.), Oxford
  Handbook of Innovation, 2004
• M. Abramovitz, Thinking About Growth, in M.
  Abramovitz, Thinking about Growth and Other
  Essays in Economic Growth and Welfare, Cambridge
  University Press, 1989, p. 3-79.

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Introduction and Outline

1. Introduction
2. Differences in Economic Performance The Role of
   Technology
3. The Global Technology Race
4. Productivity and Technology
5. Proximate, Intermediate and Ultimate Sources of
   Growth
6. What is special about investing in knowledge and
   technology? Innovation and Diffusion spillovers
   and capabilities
7. Production and Diffusion of Knowledge and
   Technology in the International Economic Order
8. Mechanisms of International Technology Transfer
9. Social Capabilities, Technological Capabilities
   and Systems of Innovation

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GDP per capita (1990 PPP) in Asia and
Africa,(South Korea, Malaysia, Thailand, Jordan,
Pakistan,Ghana, Tanzania), 1950-2006
Sources 1950-1990, Maddison (2007) 1990-2006
GGDC, 2007
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GDP per capita (1990 PPP) in Asia and Latin
AmericaArgentina, Brazil, China, India, Mexico,
1950-2005
Sources 1950-1990, Maddison (2007) 1990-2006
GGDC, 2007
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GDP per Capita, Middle Eastern Countries
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Key concepts

• the concept of a productivity and technology
  race,
• Central proposition No Asian miracle. No Chinese
  miracle. Rapid catch up is a normal process if
  the conditions are right
• Potential advantages of technological
  backwardness rapid catch up through technology
  diffusion and absorption, without bearing the
  risks of technology development.
• Changes in technology can create new
  opportunities for developing countries lead
  countries locked in obsolete technology skipping
  technology generations, e.g. environment, e.g.
  digital switching in communications
  opportunities for outsourcing
• Catch up is closely related to successfully
  tapping into and absorbing global technology from
  technological leaders.
• Multinational Enterprises are key players in
  international technology and knowledge flows.
  Their contributions to the building of domestic
  technological capabilities depend on many
  complementary factors such as absorptive
  capacities, skills and government policies.
• An important role of technology and innovation
  policy in developing countries is fostering the
  absorptive capacities of individuals, firms,
  sectors and national economies.

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Technology Race

• Labour productivity as catch-all measure of
  technological performance
• Shifts in global leadership and patterns of catch
  up
• Increase in global inequality, but increasing
  fluidity of country positions in the
  international income hierarchy.

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International Economic Orders

• Flows of goods and services (including capital
  goods, primary products, semi-fabricated
  products)
• Financial flows profits, investment, loans,
  transfers, grants, taxes
• Flows of people voluntary migration of labour,
  slave trade, contract labour, guest workers
• - Flows of knowledge (Diffusion of science,
  knowledge, information and technology, culture,
  symbols)
• and
• - Intensity of relations between economic units
  (before 19th century no world economy)
• - Institutional characteristics of relationships
  (political control, colonialism, mercantilism,
  free trade, protectionism)
• - Dependency relationships between rich and poor
  countries
• - Patterns of Growth and Stagnation in the World
  Economy
• - Size of Income gaps between regions

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Characteristics of the Post-War Economic Order

• Rapid growth of the volume of international
  trade.
• Breaking the mould of the colonial pattern of
  international trade the emergence of industrial
  exports from developing countries.
• A modest share of developing countries in
  international trade.
• Financial flows from the developed countries to
  developing countries
• Liberalisation of international trade.
• Liberalisation of capital flows increase in the
  volume of capital flows.
• The emergence of global production chains and the
  increased importance of intra-firm trade.
• Acceleration of growth of per capita national
  income in both rich and poor countries in the
  period 1950-1973, followed by divergent growth
  trends.

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Changes in Technological Leadership

• Islamic World 750-1100
• China till fourteenth century
• Italian city states in fourteenth century
  Venice, Florence, interaction with the Islamic
  science and technology
• Portugal and Spain fifteenth and sixteenth
  century
• The Dutch republic seventeenth century
• Great Britain 18th century and 19th century
• Importance of industrial revolution
• USA- 1890-present
• Future China?, Japan?, India?
• Industry as engine of growth!! What about
  services?

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Catch Up since late 19th Century

• Japan since 1868
• German and Russia since 1870
• After 1950 Taiwan, Korea, Singapore, Hong
  Kong,Western Europe versus USA till 1973 Brazil
  and Mexico till 1980
• Brazil and Mexico till 1979 followed by lost
  decade
• More recently Malaysia, Thailand, Indonesia,
  Turkey (since 2001), India and China.
• In Europe periphery Ireland, Spain, Poland

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Falling Behind

• Argentina since 1950
• Brazil and Mexico after 1980
• Ottoman empire till 1919
• Former soviet republics, including Russian
  Federation (recently recovery of Russia due to
  oil exports).
• Most of sub-Saharan Africa (except South Africa),
  but recent upturn.

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Paradox of increasing global inequality, but very
rapid catch up in some countries

• Increasing global inequality of per capita
  incomes
• 1820 ratio richest to poorest country 2 to 1
• In 2006, the richest 29 countries are 14.2 times
  as rich as the 48 poorest countries (in PPP
  dollars)
• But, if a country starts to catch up explosive
  growth is the normal pattern. Double digit growth
  in Japan, Korea, Taiwan, Singapore, presently
  China and Vietnam.

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Table Post-War Catch Up Episodes
Country Period Growth of GDP Growth of GDP/capita
China 1978-2006 8,1 6,9
West Germany 1950-1973 6,0 5,0
India 1994-2006 6,7 5,1
Indonesia 1967-1997 6,8 4,8
Ireland 1995-2006 6,2 6,2
Japan 1946-1973 9,3 8,0
Korea 1952-1997 8,2 6,3
Malaysia 1968-1997 7,5 5,1
Russia 1998-2005 7,2 7,2
Singapore 1960-1973 10,0 7,6
Taiwan 1962-1973 11,4 8,7
Thailand 1973-1996 7,6 5,8
Vietnam 1992-2005 7,6 6,1

World 1950-1973 4,9 2,9
World 1973-1997 3,1 1,4
World 1997-2003 3,5 2,3
Sources Maddison (2007), Groningen Growth and
Development Centre, (2007)
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Productivity and Technology

• Labour Productivity, National Income per Head
  and Welfare
• GDP/P GDP/H H/L L/P
• Productivity and competitiveness
• Productive Capacity as a core concept in
  development
• Rough Indicator of Technological Performance
• 2.1 Capital accumulation
• 2.2 Increase scale of production (Verdoorns
  law)
• 2.3 Education and human capital
• 2.4 Efficiency, including efficiency in the
  organisation of production
• 2.5 Disembodied Technological Knowledge
  knowledge about product and process technology
• Central goal of technology and innovation policy
  increasing technological and economic dynamism

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Proximate Factors in Growth and Productivity

• 1. Discovery of riches and natural resources
• Discovery of natural resources - gas, coal, oil,
  gold etc - can promote growth. However, such
  growth will not be sustainable unless the
  revenues from windfall discoveries are
  transformed into more durable sources of growth
• 2. Labour supply and effort
• 3. Theft
• Appropriating resources from other societies and
  using these to accumulate capital. If resources
  are appropriated, but not reinvested they will
  have the same non-sustainable effects as windfall
  discoveries
• 4. Saving and accumulating capital
• 5. Education and the accumulation of human capital

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Proximate Factors II

• 6. Efficiency
• effects of specialisation and international
  trade,
• economies of scale,
• structural change
• better utilisation of capacity (technical
  efficiency)
• Choice of techniques (economic efficiency)
• 7. Organisational Efficiency
• efficient organisation
• monitoring and motivation
• the physical organisation of the production
  process (logistics)
• 8. Disembodied Technological change
• Developing or acquiring new knowledge about how
  to produce valued goods and services and
  applying such knowledge in production. Such
  knowledge can be new to the firm, new to the
  country or new to the world.

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Disembodied Technological Change

• What do we mean by disembodied technological
  change?
• a.   changes in a stock of knowledge available to
  the firm, the sector or the country
• b.   improvements in the knowledge absorbed by
  employees and managers in school and on the job
  (Maddison, 1987, p. 662)
• c.   learning by doing and learning by using of
  employees and managers on the job
• d.  disembodied technological change as
  improvements in technological capabilities of
  firms and social capabilities of countries
• e.   the positive external effects of knowledge
  spillovers within an economy or between
  economies
• f.    the productivity improvements due to the
  complementarities of human skills and human
  capital and increases and improvements in the
  capital stock.

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Investing in Knowledge and Technological Change

• Investment in knowledge different from investment
  in human and physical capital non-rival and
  non-excludable. Knowledge diffuses and spills
  over. Technologically backward economies can
  profit from advantages of backwardness.
• Advanced economies profit more from investment in
  knowledge than backward economies. More local
  spillovers, increasing returns to scale for
  capital and knowledge. Investment in knowledge
  leads to shifting the frontiers of knowledge and
  economic divergence
• Production of knowledge primarily takes place in
  the technologically leading countries. This
  contributes to divergence
• International technology diffusion and spillovers
  can result in convergence and catch up if
  developing countries can tap into global
  knowledge flows.
• Changes in technological paradigms create new
  opportunties for catch up.
• Profiting from international technology diffusion
  and technology spillovers depends on
  technological capabilities, social capabilities,
  technological congruence and appropriateness and
  absorptive capacities.
• If catch up takes place, it is very rapid and
  dynamic

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Tapping into Global Technology Flows

• Catch Up in Modern Globalised International Order
  closely linked with Technology Diffusion and
  Technology Acquisition
• Every single example of successful catch up since
  1868 based on tapping into global technology
  flows.
• The Myth of 'Indigenous Technology'
• Successful Technology Acquisition is Innovation.
  Technology acquisition is more than copying. It
  involves adaptation and effort.
• Absorptive Capacity is the key factor
  distinguishing between success and failure in
  Development.
• South South Flows as a complement to tapping into
  global flows, not an alternative.

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Mechanisms of Technology Acquisition and Transfer

• Acquisition of technology licences.
• Technology transfer as part of a package of FDI
  or joint ventures
• Reverse engineering. Acquisition of technology
  through imports of new products which are copied
  through reverse engineering
• Competing on export markets.Competing on
  international export markets and having to meet
  international quality standards has important
  learning effects
• Original equipment manufacturing producing for
  foreign firms, according to specifications
  supplied by these firms
• International technological and scientific
  collaboration
• Acquisition of technological know-how through the
  hiring of expatriate experts
• Sending own personnel abroad for training and
  schooling. This was the path followed by Japan in
  the beginning of the twentieth century
• Investing in the most advanced economies

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FDI and Multinational Enterprises

• Increasing importance of FDI as a mechanism of
  technology transfer.
• Emergence of Global Value Chains Coordinated by
  Multinational Enterprises
• Inherent tension between the corporation's desire
  to integrate its activities on a global basis and
  the host country's desire to integrate an
  affiliate into its national economy (Dunning)
• The more developed the absorptive capacities of
  the host country, the more it will profit from
  foreign investment
• The more stable the investment climate the more
  the host country will profit from foreign
  investment
• The role of short term speculative investment is
  a potential threat to the national innovation
  system.
• Increasing internationalisation of RD, but still
  primarily within the TRIAD (USA, EU, Japan).
• Policy create complementary capabilities and
  skills, absorptive capacities, maximise learning
  from FDI.
• New phenomenon FDI from major developing
  countries, such as Brazil, India, China and
  Middle Eastern Economics. New machanism of
  knowledge flow.

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Congruence and Capabilities

• Technology Gaps the larger the gap the greater
  the catch up potential
• Technological Congruence of best practice with
  natural resources, factor supplies and other
  characteristics such as the size and homogeneity
  of markets. Too large gaps, diminishing
  congruence
• Social capability refers to the use a country can
  make of advanced technology and its capacity to
  acquire it in the first place (Abramovitz).

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Absorptive Capacities Social Capabilities

• Technical competence of a country's people
• Levels of general education
• The share of population with training in
  technical subjects.
• Management experience with large scale production
• Experience in service sector
• Quality of Financial system
• Quality of Infrastructure

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Absorptive Capacities of domestic firms
Technological Capabilities

• Production capabilities
• Investment Capabilities
• Adaptation Capabilities
• Innovation Capabilities
• Capability building by firms and sectors
• Industrial and technology policies which create
  incentives and opportunities for learning

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Absorptive Capacities Systems of Innovation

• National and sectoral systems of innovation part
  of social capabilities
• The relationships and networks between actors
  Government, Knowledge Institutions, Firms.
  Interactions between user and producer sectors.
  Public and private sector.
• Role of home market
• Property rights
• Non-price relations including power, trust and
  loyalty. Interactive learning instead of
  transactions.
• Innovation systems determine how effectively
  international knowledge is absorbed, domestic
  knowledge is generated and how knowledge spills
  over and diffuses through the domestic economy.
• A narrow focus on the role of science and
  science-based activities is not what is most
  needed. We need a concept that covers all aspects
  of competence building in socio-economic
  activities. From science and technology policy
  towards innovation policy.
• Every country needs to develop systems of
  innovation which are tailored to local
  characteristics and possibilities of tapping into
  global knowledge flows.