1. Model of a Knowledge-Based Economy
for Armenia
Hayk L. Sargsyan, Yerevan State University
Kristine A. Antonyan, Yerevan State University
AIPRG Annual Conference “Looking Forward: Global Competitiveness of the Armenian Economy”,
May 17-18, 2008, Washington, DC.

2. purpose
То have a sustained long-run economic growth adopting flexible economic policies in the new postindustrial society.
outline
I. Discuss long-run economic growth models with the productivity as the central factor, outline the knowledge as the main engine of productivity growth in a knowledge-based economy.
II. Discuss Armenian economic growth in the transitional period within qualitative indicators and TFP growth trend.
III. Decomposition of estimated TFP with Knowlede Economy pillars, revealing the strenghts and weaknesses the country has and emphasize the needed directions for policy towards a knowledge-based economic model.

3. Long-run growth models theoretical considerations
neoclassical growth theory: using exogenous production functions revealed that the “Black box” residual is explained with capital accumulation and hence technological progress, resulting to a long-run sustained economic growth
endogenous growth theory:explained the driving growth of productivity or the unexplained residual through the concept of the human capital
R&D growth models: considered the driving development through adoption of innovations by means of trade among countries: qualitative transformations and structural change

4. Conclusion: KE pillars
PRODUCTIVITY
GROWTH
OUTPUT GROWTH
Physical capital accumulation
Technologies
Industrial society
& Industrial Economy
Innovations
Postindustrial society & KE
Human capital accumulation
Human capital
Knowledge
ICT infrastructure
Education
Institutions

5. Armenian economic growth is accompanied with
The substitution of goods production and agriculture by services production appropriates the global trends. Still, international comparisons indicate, that the country appropriates to low income countries.
2. The growth in non-agricultural sector is characterized by labor productivity growth (output per worker). Yet, it is mainly expounded with the permanent decrease of employment rate during the whole transformation.
3. The poverty rate is high in the country (although, it has reduced from almost half of the population to 26,5%)
4. The country is defined by unequal regional developments, mainly concentrated in the capital.
5. Continuous migration especially among younger population still exists in the country.

6. 6. (1) Picture 1. The TFP growth rate of RA in the period of 1992-2006
Armenian economicic gowth is described with:
Crisis ( )
Stability ( )
Improvement ( )

7. Table 2. The TFP decomposition through the KE
pillars. KEI of Armenia and Estonia
Variable
Armenia
Estonia
(most recent)
1995
1 pillar: Economic Incentive and Institutional Regime (average)
5.26
3.52
8.60
8.75
2 pillar: Innovation (average)
4.81
4.63
8.12
7.07
3 pillar:Education (average)
3.40
2.61
8.22
7.37
4 pillar: ICT (average)
2.44
3.71
9.24
9.17
Knowledge Economy Index (average)
4.64
3.84
7.73
Source: World Bank, KAM, URL//

8. Conclusion
-In early transformational period, the crisis destroyed the Armenian economy so much, that the TFP present growth rates, calculated on low basic figures, do not assure a competitive level of knowledge-based economy
-The growth is insufficient for being sustained

9. Education- the pillar of knowledge-based economy
A. Picture 2. Enrollment in education institutions by age
Source: NSS, Education Transitions in Armenia, UNDP, 2006.
Higher education is rapidly becoming inaccessible for the greater part of the population.

10. B. The quality of Education - the combination of the three components - education inputs, educational process and outputs.
INPUTS
PROCESS
OUTPUTS
The level and quantity of school (middle-school, high school, after-school) graduates entering labor market
Financing
Basic education process
Internet at schools
Quality of teachers
The level and quantity of school (middle-school, high school, after-school) graduates continuing studying
Tertiary education process
Selection of lecturers, students

11. Conclusion: Picture 3. . Employment by education degree
The economic growth in Armenia is described with worsening quality of the human capital (the portion of human capital decreases in TFP)

12. Innovation- the pillar of knowledge-based economy
The main issues through several substantial indicators:
Public
National producers and business environment
Expenditures on R&D
External financing
Researchers holding scientific degree, average age of researchers holding scientific degree, average age of scientific equipment
Expenditures on Innovations
Innovative enterprises in industry
Innovative output in industry
The number of granted patents
Science-HEI-private institutions cooperation

13. Conclusion: estimating policy
Implications towards an Innovative economy
EXTERNAL SHARE
Towards KE
STATE
NGOs
International organizations
Estimating priorities
1. Venture funds,
2. techno parks
ECONOMY
SCIENCE
INNOVATION
EDUCATION

14. ICT- the pillar of knowledge-based economy
The main issues through several substantial indicators:
Provision of the population with home telephone sets, mobile phones, successful calls
The number of Internet users, Internet access
The number of ISP, Internet prices
Phones, Computers, Internet accesses from workstation
E-commerce
Online government resources
E-governance

15. Conclusion: estimating policy Implications towards a E-society
ICT infrastructure
social
economic
public
Information society

16. CONCLUSION
Decomposition of TFP growth estimates, that:
The country has a comparative advantage in the factor of human capital, which though is worsening
The country has improved its competitiveness through adopting new technologies, increasing the knowledge-based potential of its productions and services
ICT, as an infrastructure becoming the most important pillar for a KE, is still on a low level in the country, thus preventing economic competitiveness, productivity growth, transformation to a KE and hence long-run sustained economic growth

17. Long-run policy conclusions
Encouraging “education, science and innovation” with new strength and quality within a reconstruction of new “education-innovation-economy” model, that will form a base for passing to the third, innovative level of competitiveness,
Transforming the “Book Society” to “E-Society”, within rapid development of ICT infrastructure and its assimilation in the social, public and economic aspects of life, such as e- commerce, e-governance, e-learning etc.
Coordination the activities of different government institutions and donor initiatives.