Catching up, innovation and future prospects Manuel Mira Godinho (ISEG/UTL) Presentation to the 2004 Globelics PhD School

Presentation partially based on: J. Fagerberg and M. Godinho, Innovation and Catching Up, chapter in Jan Fagerberg, Richard R. Nelson and David Mowery (eds.) (2004), The New Oxford Handbook of Innovation, OUP.

1. “Catching Up” 2. Accounting for growth and catching up 3. Learning and Innovation 4. Future prospects for catching up 5. China

Part 1 “Catching Up”

Analysis of «catching up» not the same as Analysis of «economic convergence»

 Economic convergence literature: based on the prediction of conventional economic theory: diminishing returns to capital in advanced economies plus mobility of resources would bring poor economies closer to the richer ones  However convergence has hardly been noticed on a global level in recent decades  If anything over the last 200 years: divergence (GDPpc from 1:10 to 1:400)  Results dependent on methods and indicators used  E.g.Sala-i-Martin (2002) using country-weighted convergence measures concludes that 1990s witnessed some degree of global convergence (China effect), but divergence happened when taking into account worldwide distribution of income (again China effect)

Catching up Literature Focus on specific cases: countries particularly successful in closing the gap in a relatively short span of time Focus on: - Historical conditions - Institutional arrangements - Innovation, technology and learning Old Institutionalism (Veblen...) Economic History (Gershenkron)

Catching up

1960 GDPpc 1999 GDPpc 1º QuartileUS (West) Germany UK France Finland Italy US Japan Singapore France Hong Kong Ireland º QuartileArgentina Chile Ireland Japan Spain Mexico UK Finland (Unified) Germany Italy Taiwan Spain º QuartileGreece Hong Kong Portugal Brazil Singapore Malaysia Portugal South Korea Greece Chile Argentina Malaysia º QuartileTaiwan Philippines South Korea India China ,8 0.7 Mexico Brazil China Philippines India countries

Part 2 Accounting for growth and catching up

Factors behind successful catching up  Accumulation  Structural Change  Institutional Change

Accumulation and learning Structural Change Institutional change Investment in capital goods and in infrastructure Labour force Investment in education and training R&D, reverse engineering... Adjust sectoral composition of the economy towards sectors of high demand growth and technologically more progressive Clustering Firm demography, size distribution... Create new (lacking) institutions or redesign existing ones

Accumulation and learning Structural Change Institutional change Investment in capital goods and in infrastructure Labour force Investment in education and training R&D, reverse engineering... Adjust sectoral composition of the economy towards sectors of high demand growth and technologically more progressive Clustering Firm demography, size distribution... Create new (lacking) institutions or redesign existing ones Where is innovation?? Next: focus just on a small part of the previous table Investment in education and training R&D, reverse engineering

Part 3 Learning and Innovation

FDI Stock / GDP

Learning: the relevance of connecting to external sources Exports Imports FDI Licensing Subcontracting Example of Korea and Taiwan (Hobday, 2000) OEM – Original Equipment Manufacturing ODM – Original Design and Manufacturing OBD – Own Branding and Design

Education Level years old Source: UNESCO

GERD/GDP

US Patents per million inhabitants in the country of origin

Part 4 Prospects for catching up

Questions for the future Global convergence or divergence? Will there be new countries catching up over the next decade(s)? What are the factors that will account most for rapid catching up? And what will hinder most the catching up opportunities?

Part 5. China 5.1. Opening up 5.2. Growth and accumulation 5.3. Threats

5.1. Opening up to external relations 1978: policy shift SEZ’s: Shenzen, Zuhai Inward investment Growth in trade

Cumulative FDI Total 447 b US$ HK 45,7% US 8,9% Japan 8,1% Taiwan 7,4% Virgins Is. 5,4% Singapure 4,8% S. Korea 3,4% UK 2,4% Germany 1,8% Macau 1,1% Netherlands 1,0% Caiman Is. 0,9% Canada 0,8% Malaysia 0,6% Others 6,6% FDI/GFCF 2002  4,6% 1990s  > 10%

External trade, 10 6 USD

EXPORTS 2001: 23% GDP FDI exports: 56% Share in international market 1980  1,0% 1990  1,9% 2001  4,3% 4th world exporter High-tech exports: 19% IMPORTS: effects on world markets

5.2. Economic Growth and accumulation GDP growth 91-96: 11,6% 97-02: 7,8% Germany, Japan, US

CPI

Accumulation Investment rate 2002  44% Education: > 6 y.o., % Primary education 38% Basic 13% Secondary education 5% Third level R&D, Scientific publications

GERD/GDP (%)

5.3. Threats Big train moving at high speed What will make it get out of the tracks?

Threats (1): Regional imbalances Coast 14% area 40% population 70% wealth > 90% FDI GDPpc  1:12 Demand for consumer goods in urban areas: from 19% in 1985 to 58% in 2002

Threats (2): Financial risks –Overborrowing –Public sector enterprises But  External Reserves: US$ 400b

Threats (3): Political tensions Taiwan Tibet Hong Kong (1)+ (2) + (3) But  satisfaction with income growth

END