National innovation systems concept as a policy tool in refining catching-up strategies in small developing countries Photo: Johannes Pääsuke 1912 Estonian National Museum

Recent policy work in Estonia Competitiveness and future outlooks of the Estonian Economy, Estonian R&D Council, 2003 Made in Estonia, forthcoming 2005 –Theoretical framework –ICT, bio- and nanotechnology trends –Estonian main socio-economic challenges –Policy scenarios

What policies should a small country pursue? Antonio Serra, Breve trattato delle cause che possono far abbondare li regni doro e argento dove non sono miniere [A brief overview of reasons that may bring a lot of gold and silver to kingdoms where there are no mines], Naples, Lazzaro Scoriggio, (See also: Reinert 1994, Freeman 1998)

Globalisation & EU enlargement Larger market enables for greater division of labour (Smith 1776) –application of new (in local context) technologies for increasing productivity –new markets for capital goods (technology)

All economic activities are not the same Charles King (1721): good trade and bad trade Creative destruction and economic cycles –Kondratjev 1926, Schumpeter, Freeman et. Al

From business cycles to long waves of development Source: Perez (2002)

Global spread of technologies Source: Wells (1972) …as they matured in mass production paradigm Initial R&D effort Increasing returns Decreasing returns

Catching up or lagging behind? Quality of industrial change in selected World regions, Source: Reinert and Kattel 2004

Real GDP per capita

Small/developing country squeeze Global technological development largely exogenous to domestic R&D efforts –Domestic (tiny) public investment into R&D generally not a feasible way to acquire presence in radically new indigenous high- tech industries Increasing cost competition in resource and/or labour intensive low-tech sectors –Avoid social dumping and race to the bottom

Policy strategies Source: Wells (1972) Technology leader Cost leader Fast follower Technology diversification

Locational windows of opportunities Attracting certain parts of the value chains of new high-tech industries, i.e. ICT, bio- and nanotechnologies … while ensuring positive spillovers from FDI and upgrading the existing traditional activities

Lessons for future Emphasis on structural adjustment and horisontal policy co-ordination –strong insight on the development of global markets and new technologies –future education and technology needs (inward technology transfer and R&D are both important) –life-long learning and active labour market policies –targeting of specific FDI and ensuring spillovers / technology transfer to indigenous companies