Globalization, Technology and Asian Development Joseph E. Stiglitz Asian Development Bank April 7, 2003 Manila

2 Many Dimensions to Globalization 1. Trade 2. Capital a. Short Term Capital Flows b. FDI 3. Labor 4. Knowledge

3 Development entails … … not only closing the gap in resources between developed and less developed countries, but closing the gap in technology 1. Asia has been most successful 2. Result of explicit efforts on the part of government

4 Why there is a need for government: Market Failure (I) 1. Market failures in the market for knowledge a. Knowledge is a classic example of a public good b. There are also large externalities c. Need for government to protect intellectual property rights d. But most knowledge is neither generated by or protected by intellectual property rights – role greatly exaggerated i. Excessively strong (broad) intellectual property rights may impede growth ii. Intellectual property rights cause static inefficiency iii. Much of intellectual property involves enclosure of commons e. Need for government to support research and development, including product development

5 Why there is a need for government: Market Failure (II) 2. Market failure in finance a. R&D cannot be collateralized b. Financial problems worse for R&D

6 Have technology policies worked? 1. Remarkable record of success, in US, Asia, and Brazil a. Agriculture b. Telecom, including internet c. Successes in research, development and diffusion 2. Risky Investments –expect some failures 3. But there have been problems a. Difficulty of cutting off bad projects b. Corruption, political influence

7 Strategies for improving technology policies 1. Broad based strategies better than narrowly focused 2. Support of intellectual infrastructure a. Key role of education, especially advanced education b. Also of research institutions 3. Competitive selection (peer review) 4. Focus on extent of externalities, public good properties 5. Joint ventures –equity commitments

8 Well-designed globalization can promote technology and development 1. Trade linkages and fdi often bring access to markets and technology 2. Training requirements may facilitate the transfer of knowledge 3. Joint ventures may exploit taking advantage of local knowledge facilitating the adaptation of technology

9 But poorly designed globalization can inhibit development 1. Capital market liberalization and policies focusing excessively on inflation can lead to instability in the real economy, making real investment in both physical and human capital less attractive 2. Excessive reliance on foreign banks may inhibit the supply of finance to small and medium size enterprises, which have traditionally played a key role in technology development 3. Unbalanced intellectual property agreements (Uruguay Round) may inhibit access to new technology

10 Conclusions 1. The countries that have been most successful have had a comprehensive technology policy, including education, research and finance 2. Because of globalization, challenges and opportunities today greater than ever before