China and India as Emerging Technological Powers Carl Dahlman Georgetown University V Knowledge Economy Forum Prague March 28-30, 2006 ©cjd

Share of Global GDP A Two Millennium Perspective (Madison 2000, WDI 2005) ©cjd China India United States Japan Western Europe

World GDP PPP Share for different regions ( ) ©cjd High income: OECD ex. US & Japan United States East Asia & Pacific Japan Europe & Central Asia Latin American & Caribbean South Asia Sub-Saharan Africa Middle East & North Africa

Global View: Knowledge Economy Index (un-weighted) ©Knowledge for Development, WBI ©cjd

Relative Size 15 Largest Economies 2003 ©cjd

China India Most Recent ©cjd

Comparisons 1995 to Most Recent ©cjd

China India Innovation Pillar Scientists & Engineers in R&D Scientific &Technical Publications Patents in US ©cjd

Global R&D Effort in Comparative Perspective (Data for 2002) Source: World Bank SIMA Database ©cjd

China India Innovation System ©cjd

China India Education ©cjd

Share of Global Merchandise Exports (percentage) Source: WTO Database, 2005 ©cjd United States Germany Japan China Netherlands Italy United Kingdom France Canada

China--Strengths Very high economic growth, large internal market Very high savings and investment rate Excellent at tapping into global knowledge through direct foreign investment and Chinese Diaspora Becoming world s manufacturing base Very large supply of excess labor will continue to give it low wage advantage But moving rapidly up value chain from labor intensive to more technology intensive exports Efficient export trade logistics Critical mass in R&D is beginning to be deployed to increase competitiveness Strong investments in education and training Government with strong sense of national purpose ©cjd

China -- Lessons Importance of nation state in developing long term strategy for country, providing stable macroeconomic framework, pragmatism in transition to market economy developing an institutional means for development to take place focusing for several decades on the importance of education and science and technology Importance of integration to world economy and of trade in goods as engine of growth Very effective use of direct foreign investment to move up technology ladder Strong investments in human capital as fundamental step to make the transition Effective use of Chinese Diaspora in high tech parks and to bring in technology and access to markets ©cjd

India -- Strengths Jumped from traditional rate of 2-3% growth in past decades to 6-8% last decade Strong science and engineering capabilities centered in chemical and software areas Is becoming worlds service center for software development and back office offshore outsourcing Is also becoming center for contract innovation work for multinational companies Has large critical mass of educated, skilled, and English speaking knowledge workers and can increase this stock Has network of successful Indians in US and Europe providing links to markets, technology, and finance Relatively deep financial markets Is strengthening export orientation, and seeking strategic alliances, but strength is limited more to intangible trade rather than tangibles trade because of high infrastructure and regulatory costs ©cjd

India -- Lessons Importance of investments in high level technical, scientific, and managerial capital through network of Indian Institutes of Technology and Indian Management Institutes Importance of turning brain drain to brain gain by harnessing Indian Diaspora in global high tech industry Importance of moving from self-reliance to greater international integration to accelerate and sustain growth Importance of improving the whole legal and regulatory environment to stimulate greater innovation and get more out of growing critical mass of resources allocated to R&D Importance of tackling necessary reforms in regulatory regime and improving infrastructure and education to really emerge as major export power ©cjd

Conclusions Globalization increasing; global competition intensifying World Moving toward three economic blocks-US, EC, and Asia Asian Block rising in economic importance East Asia, and within East Asia, China s entry into world stage unprecedented in speed, scope, and scale India on threshold of becoming another global economic power Both have critical mass in education and innovation capability which they are beginning to deploy very effectively Key lesson from China is how aggressively and effectively it has become major global player by making effective use of global knowledge and trade, plus investment in education Countries in ECA region will face increasing pressure to Upgrade broad economic incentive and institutional regime and participate more actively in global system Strengthen formal education and life long learning to be able to constantly restructure and compete Effectively tap global knowledge and combine it with domestic innovation efforts to raise productivity and competitveness Align themselves as part of global value chains ©cjd

Annex ©cjd

Benchmarking Countries in the Knowledge Economy: The Knowledge Assessment Methodology KAM: 80 structural/qualitative variables to benchmark performance on 4 pillars Variables normalized from 0 (worst) to 10 (best) for 128 countries and 9 regions Basic scorecard for 14 variables for two points in time, 1995 and most recent Knowledge economy index (KEI) which includes 3 variables for each of the four pillars: Economic and institutional regime: tariff and non-tariff barriers, rule of law, regulatory quality Education: literacy, secondary and tertiary enrollment rates Innovation: researchers in R&D, scientific and technical scientific publications, and patents in the US ICTs: fixed and mobile phone lines per 1000 people, computer per 1000, internet users per 10,000 ©cjd

KE Basic Scorecard Compared ©cjd

Innovation System Compared ©cjd

Education Comparison

Czech Republic / ECA / G7 ©cjd

Czech Republic, Slovakia, Slovenia ©cjd

Belarus, Poland, Ukraine ©cjd

Estonia, Latvia, Lithuania ©cjd

Bulgaria, Hungary, Romania ©cjd

Bosnia and Herzegovina, Croatia, Serbia and Montenegro ©cjd

Albania, Armenia, Georgia ©cjd

Kazakhstan, Tajikistan, Uzbekistan ©cjd

End Carl J. Dahlman Luce Professor of International Affairs and Information Technology Georgetown University Telephone: ©cjd