CLOSING THE GAPS IN EDUCATION AND TECHNOLOGY William F. Maloney Office of the Chief Economist Latin America and Caribbean Region World Bank FOCAL- Conférence de Montréal, May 03

50% of growth is due to Total Factor Productivity: technological progress Source: Calderon, Fajnzylber y Loayza (2002)

Why is LAC so behind in technological progress? Barriers to innovation – Protectionism reduced incentives to innovate or search global knowledge stock for ideas – High barriers to trade and FDI – Progress made over last two decades Low levels and quality of education Weak effort in innovation Disfunctional National System of Innovation (NIS) Weak on ingredients and and how they mix

Technological and Educational Gaps: LA vs. Asia and Scandinavia

Growth in Relative Demand:Tertiary vs. Secondary Education MexicoChile Chile: Estimated Relative Demand Mexico: Estimated Relative Demand

The Deficit in Years of Education

The Deficit in Secondary Enrollment

The Deficit in Tertiary Enrollment

Educational Quality Grade on PREAL –UNESCO Exam, 1997

Quality of education is poor too Mathematics score of secondary level students 2 nd best score in LAC

Terciary- Ok given level of GDP but... Fuente: Brunner 2001 Ph.D.s en Ciencia/millón hab

Education Agenda Must raise level of secondary enrollment – Not just an issue of money, but institutions and incentives Must facilitate access to tertiary – Improve credit markets, financing Improve quality of education systems Link training programs to productive sector

Tech progress also requires active investment in innovation Active approach to trade, FDI – Asia- Reverse engineering, research consortia – NAFTA is not enough (see forthcoming NAFTA Study) Search and purchase of technology- licensing R & D – Learning where the frontier is – Apply in process of adoption /adaptation, Invention Countries need to learn how to learn!

LAC: Not among the Innovation (R & D) Superstars Fuented: Lederman y Maloney (2002) India Argentina China Costa Rica Israel Finland Korea Mexico Canada: average for income, below US, Finland, Sweden

Latin America Do NR offer fewer opportunities for innovation?

Advanced Countries: X- NR Canada- average for income- far below US, Finland, Sweden

Pattern is not due to low returns to investment in innovation Returns of % in US literature; higher in LDCs US should invest 2-4 times more; LAC should invest 2-10 times more Market failure: social return far higher than private Fuented: Lederman y Maloney (2002)

LAC ’ s efficiency of converting R & D into patents,TFP is also low Patents = B 1 I&D + B p country*R&D

Why does LAC lag in innovative effort and efficiency? Not addressing serious mkt failures in innovation – Few incentives to R & D - tax breaks, subsidies – Weak efforts to help firms learn Incubators, research parks, consortia Disfunctional NIS: – Knowledge networks: how a country learns and acquires its “ innovative capacity ” – Explains more dynamic NR sectors in Scandinavia. see From Natural Resources to the Knowledge Economy (2001) – No mkt forces assure elements of NIS work together

Human Capital University Think Tanks/ Antenna Firms Innovation & TFP Growth Other Public Policies: Rules of the Game Infrastructure (ICT) Subsidies/Tax incentives Coordination Initiatives Global Knowledge Economy National Innovation System Innovation Clusters Global Knowledge Economy

Most R & D $ and scientists in universities but collaboration with private sector is very low (interviews with entrepreneurs: score 1-7)  Finland 40% have formal arrangements with U  Chile 25% and not very fruitful (Melo 2001)  60% of $ dedicated to basic science; US 15%

Latin America ’ s Challenge for the next decades … Close huge secondary gaps and improve quality; access to tertiary – Credit, subsidies & information – Support to get over the secondary hump Encourage private R&D and training through further openness and deregulation, IPR and competitive subsidies for R&D Networks: University/firms linkages; sectoral innovation clusters; international connections Lubricants: labor market and financial sector reform

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