Knowledge, Science & Technology for Development: A General Framework and an Application to China...

Knowledge, Science & Technology for Development: A General Framework

and an Application to China

Carl J. Dahlman*

Columbia UniversityApril 12, 2001

*World Bank InstituteThe World Bank

Structure of Presentation

• Knowledge and Development

• Knowledge Revolution

• Implications for Developing Countries

• Challenges to China’s Growth

• Strategic Components for the Knowledge-Based Economy in China

• Implementation of the Strategy

© Knowledge for Development , WBI© Knowledge for Development , WBI

Knowledge makes the Difference between Poverty

and Wealth...

0

2

4

6

8

1958 1962 1966 1970 1974 1978 1982 1986 1990

Rep. of Korea

Ghana

Thousands of 1985 international dollars

Difference attributed to knowledge

Difference due to physical and human capital


The Knowledge Revolution• Increased Codification of Knowledge and Development of New

Technologies

– Information processing, storage and transmission

– Biotechnology and new materials

• Closer Links with Science Base/Increased Rate of Innovation/Shorter Product Life Cycles

• Increased importance of education & up-skilling of labor force

• Innovation and productivity increase more important in competitiveness & GDP growth


The Knowledge Revolution -2• Investment in Intangibles (R&D,education,

software) greater than Investments in plant and equipment in OECD)

• Increased Globalization and Competition

– Trade/GDP from 38% in 1990 to 52% in 1999

– Value added by TNCs 27% of global GDP

• Bottom Line: Constant Change and Competition Implies Need for Constant Restructuring and Upgrading


Implications for Developing Countries

• Risk of Knowledge Divide with Developed countries and within countries

• Need to develop strategies to use existing and new knowledge to– Improve performance in traditional sectors– Exploit opportunities for leapfrogging– Develop competitive new sectors

• Need to – Learn from other countries– Develop strategies for own situation and current

context


Strategy of Using Knowledge for Development

• Strategy not just about high tech or Information and communication tech.

• Is about making effective use of knowledge across economy and society

• Requires better interaction between policies, institutions, technology, people, and government

• Is about getting knowledge to mothers, farmers, workers, enterprises, and government to improve lives


Framework for Using K 4 D:Four Key Functional Areas

• Economic incentive and institutional regime that provides incentives for the efficient use of existing and new knowledge and the flourishing of entrepreneurship

• Educated, creative and skilled people

• Dynamic information infrastructure

• Effective national innovation system


Knowledge Assessment Methodology: Country Scorecards

• Benchmarking tool to help countries assess how well they are positioned to use knowledge for their development

• Tool is flexible so that a country can compare itself to its neighbors, competitors or others it wishes to emulate

• Helps to identify opportunities/challenges and where countries may need to focus policy attention or future investments


Knowledge Assessment Matrix

• KAM consists of 61 structural and qualitative variables representing four pillars of the knowledge economy, plus variables that show the overall performance of economy

• Sources: WDI, UNDP, WEF, IMD, etc.

• Comparison is undertaken for 75 countries of which (in income levels): low: 17; lower middle: 26; upper middle: 15; high: 17

• Interactive KAM: http://www1.worldbank.org/gdln/kam.htm


Data for the KAM: 61 variables

1 Performance: 7 variables

2. Economic Incentive: 8 variables;

3. Institutional Regime: 7 variables

4. Human Resources: 14 variables

5. Innovation System: 12 variables

6. Information Infrastructure: 13 variables


Score Card Indicators

• As large set of variables is unwieldy, reduced score cards with fifteen variables representing four pillars of the knowledge economy, as well as performance

• Chose variables for which data is widely available (WDI, UNDP etc.)

• Variables normalized with 10 for highest in sample of 75

countries, and 0 for lowest

• Scorecards serve as a quick graphical way to compare countries


USA

0

5

10Annual GDP grow th

Human Development Index Gross Domestic Investment

Tarif f & Nontarif f Barriers

Rule of Law

Control of Corruption Foreign Direct Investment

R&D expendituresHigh-Technology products Adult literacy rate

Secondary Enrollment

Tertiary Enrollment

Telephones

ComputersInternet hosts


Brazil

0

5

10Annual GDP growth


Tariff & Nontariff Barriers

Rule of Law

Control of Corruption

Foreign Direct Investment R&D expendituresHigh-Technology products

Adult literacy rate


Tertiary Enrollment

Telephones



China

0

5




Rule of Law



Adult literacy rate


Tertiary Enrollment

Telephones



India

0

5




Rule of Law



Adult literacy rate


Tertiary Enrollment

Telephones



Total Population (1999)

Nigeria PakistanBangladesh

Iran

Vietnam

Indonesia

IranTailand

Turkey

MexicoBrazil

RussiaGermanyUK

Japan

US

IndiaChina

0

20

40

60

80

100

0 5000 10000 15000 20000 25000 30000 35000 40000GDP per capita (PPP)

Ter

tiar

y en

rollm

ent

(net

, %)

Philippines

Egypt


GDP (PPP, International Currency, 1998)

ChinaIndia Indonesia

TurkeyBrazil

Mexico

Russia

South Africa

Korea

Spain

ArgentinaUK

GermanyFrance

Japan

Italy

Australia

Canada

US

Taiwan

0

20

40

60

80

100

120

0 5000 10000 15000 20000 25000 30000 35000GDP per capita (PPP)

Ter

tiar

y en

roll

men

t (g

ross

, %

)


Human Development Index (1960-98)

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1960 1970 1980 1995 1998

Human Development

Brazil

India

China


GNP Growth (Average, %)

0

2

4

6

8

10

12

1967-75 1976-85 1986-95 1996-99

%

Brazil

India

China


Per Capita GDP (PPP)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1975 1985 1995 1999

Brazil

India

China


Challenges to China’s Growth

• Sustaining high economic growth rates

• Widening personal and regional income disparities

• Creating productive jobs in face of increasing international competition

• Growing environmental constraints

• Making economic and political transition


China's Overall International Competitiveness (as ranked by IMD's World Competitiveness Yearbook)

3126 27

2429 31

0

10

20

30

40

1995 1996 1997 1998 1999 2000


China's International Competitiveness in Selected Areas (1) (ranked by the IMD)

2 2

14

5 6

18

34

23

29

2018

35

129

6 5

16 16

38 3740

42

36

42

0

10

20

30

40

50

1995 1996 1997 1998 1999 2000

Domestic Econ.

Internationalization

Government

Finance


China's International Competitiveness in Selected Areas (2) (ranked by IMD)

4340 40 40 42 4241

3034

30

36 37

27

20

13

25

3735

31

2427

282829

0

10

20

30

40

50

1995 1996 1997 1998 1999 2000

Infrastructure

Management

Science &Technology

People


Trade to GDP Ratio (%)

0

5

10

15

20

25

30

35

40

45

50

1965 1975 1985 1995 1999

%

Brazil

India

China

© Knowledge for Development, WBI© Knowledge for Development, WBI© Knowledge for Development , WBI© Knowledge for Development , WBI

Exports (constant 1995 US$, bill)

49

62.4

252.1

11.5

20

14.8

0 1 2 3

Brazil

India

China

1980 1999


0

10

20

30

40

50

60

70

80

90

100

1975 1985 1990 1995

Other manuf.goods

Machineryand transportequipmentChemicalproducts

China Manufacturing Exports

% of total exports

© Knowledge for Development, WBI© Knowledge for Development, WBI© Knowledge for Development , WBI© Knowledge for Development , WBI

High-tech Exports as % of Manufactured Exports

02468

10121416

1992 1995 1998

Brazil

India

China


From Factor-Based to Knowledge-Based Growth

• China must increase the productivity of capital and labor

• This will require more than just focusing on high technology industries

• Need to increase productivity of all economic activities

• Need to create jobs to cope with wrenching restructuring


China

0

5




Rule of Law



Adult literacy rate


Tertiary Enrollment

Telephones



Updating the Economic and Institutional Regime

• Greater openness to international competition

• Strengthening domestic competition

• Restructuring/privatizing SOEs

• Financial sector/corporate reform, including strengthening of capital markets and development of venture capital

• Improving labor market flexibility

• Increasing domestic competition

• Strengthening rule of law


Specific Issues in the Economic and Institutional Regime

• Dealing with risk of increasing inequality– Social safety nets– Growing regional inequality

• Improving regulatory framework – Cleaning bureaucratic overload– Enforcement of technical regulations (product quality, safety...)– Strengthening intellectual property

• Changing the Role of Government – from main producer to developing markets and institutions– providing key public goods good efficiently and dealing with

equity and social issues– increasing the revenue base to be able to finance the transition


Developing Human Resources for the KBE

• Educated and skilled human resources = key to success in the KBE

• China still has a high illiteracy rate (25% female, 9% male 1998), and very low tertiary enrollment (6%, 1997)

• Serious problems with access &quality

• Challenge: making the best use of limited resources to increase access and quality


0

1020

30

4050

60

70

8090

100

110120

130

1965 1975 1985 1995 1996 1997

Secondary Enrollment%

Brazil

India

China


Total number of pupils by level of education (mill., 1997)

34.3 140 110.4

6.4 68.9

5.8 6.1

158.5

1.9

0

5

10

15

20

25

30

0 1 2 3 4 Brazil China India

Secondary*

Primary

* China’s secondary level includes both formal & informal education sectors.

Tertiary


Tertiary Enrollment Rate (%)

0

5

10

15

20

1965 1975 1985 1994 1996 1999

%

Brazil

India

China


Number of people with higher education (population aged 25 and above, mill., 1989-94)

26.9

12

76.5

11.4

0

10

20

30

40

50

60

70

80

90

India China Russia US


Specific Human Resource Issues

• Strong private demand for education not fully tapped

• Over-regulation: quotas, testing, content

• Weak links between market needs and supply

• Need massive re-training programs for displaced workers

• Serious internal and external brain drain

• Make use of well developed distance education network


Ensuring a Dynamic Information Infrastructure

• A dynamic information infrastructure is critical to take advantage of the knowledge and information

• China has made big strides

• China can use an effective information infrastructure to facilitate the industry upgrading, to leapfrog and achieve competitiveness and future success


Telephone mainlines (per 1,000 people)

0

20

40

60

80

100

120

140

1975 1985 1995 1999

Brazil

India

China


Mobile Phones (per 1,000) people

0

10

20

30

40

50

1995 1996 1997 1998

Brazil

India

China


Personal Computers (per 1,000 people)

05

101520253035

1990 1993 1995 1998

Brazil

India

China


Internet Hosts (Per million people, Log)

0

0.5

1

1.5

2

2.5

3

3.5

1995 1996 1997 1998 1999

Brazil

India

China


Specific Issues in the Information Infrastructure

• Deregulate telecom and allow private investment and market competition at early stage

• Expand access, reduce price, relax Internet control

• Go beyond use of internet for communications to information resource and using it as a tool to reduce business, government and social transaction costs

• Will need legislation and regulation for electronic commerce


Improving the Innovation System

• Three key components of Innovation System– Creating Knowledge

– Tapping global knowledge

– Disseminating and using knowledge

• China is focusing primarily on– Developing high tech parks

– R&D

• Not enough effort on dissemination to increase productivity– agriculture

– traditional and new industry

– services


R&D Spending: Largest LDCs (1996 est.)

Country Amount in Millions S. Korea 14,700 Brazil 5,790 China 4,610 Russian Fed. 2,810 India 2,730 Poland 1,030


Top R&D Performers in US(1997 in millions)

Company R&D Expenditures GM 8,200 Ford 6,327 IBM 4,307 Lucent 3,101 Hewlett-packard 3,078 Motorola 2,748


Royalty Receipts and Payments by Country Groupings

(% out of $66 billion in 1999)

Country Receipts % Payments% Low Income 00.1 00.6 Lower Mdl Y 00.6 03.7 Higher Mdl Y 01.5 09.4 High Income 97.8 85.8 (US) (55.5) (20.2) (Japan) (12.5) (15.0)

(EU)


Share World Technical Articles & Patent Apls by Residents (1998)

0

10

20

30

40

50

60

70

80

90

100

LY LMY UMY HY US Jpn EU

Tech. Artl

Patent Apl


Total R&D Expenditure (PPP, 1996)

Russia

Japan

USAustraliaDenmark

CanadaUK

NetherlandKorea

SpainItalyPoland

Austria

Switzerland

FinlandFrance

Germany

Turkey

China

IndiaBrazil

0

1000

2000

3000

4000

5000

6000

0 0.5 1 1.5 2 2.5 3 3.5R&D expenditure as % of GNP

Sci

enti

sts

& E

ng

inee

rs (

per

mil

lio

n p

eop

le)


Scientists & Engineers in R&D (Total)

419847

94058 138421

32512 26712

0 1 2 3

Brazil

India

China

1982 1995


R&D Expenditure (US$, mill)

2270

5310

4420

2220

2570

0 1 2 3

Brazil

India

China

1988 1994


Specific Issues in the Innovation System• Put massive efforts into dissemination by expanding:

– Innovation sites (incubators)– Engineering research centers– Agricultural extension services and new Spark program

• Improve links to global knowledge– FDI– Technology alliances, R&D collaboration– Partnering abroad

• Improve internal efficiency of R&D effort– Balance among basic/applied/development/ acquisition– Maintain public good R&D efforts– Evaluation of effectiveness of R&D effort


Disseminating Knowledge

• Growth of more efficient enterprises

• Sales (technical services, equipment, inputs)

• Government agricultural and industrial extension services, demonstration projects

• Media, Technical Journals, Internet

• Links between universities, research institutes, and firms, people,


Tapping into the Global Knowledge Base

• Trade, foreign direct investment, technology licensing

• Joint research/ business/ cooperation

• Technical assistance, foreign study, overseas nationals, hiring foreigners

• Technical journals, databases, internet


FDI Inflows (US$, Bill)

0

5

10

15

20

25

30

35

40

45

50

1980 1985 1990 1995 1998

Brazil

India

China


FDI Inward Stock (Mill. US$, 1980 V. 1999)

16416

164105

306003

1177

17480

6252

0

5

10

15

20

25

30

0 1 2 3

Brazil

India

China

1980 1999 © Knowledge for Development , WBI© Knowledge for Development , WBI

Key Issues in Foreign Investment

• China has tapped primarily FDI in manufacturing, little still in service sector other than hotels

• China’s service sector is very underdeveloped

• Opening up to FDI in services can help improve productivity and develop sector


0

10

20

30

40

50

60

70

1965 1975 1985 1990 1997

Increasing Share of Service Employment

Brazil

India

China


Managing R&D Effort

• Improve efficiency/relevance of existing R&D government programs; encourage private effort

• Link to the fast growing global knowledge system

– cooperative international public research programs and exchanges of researchers

– strategic alliances, FDI, foreign research labs

• Clearly justify rationale for public intervention

– provide subsidies transparently

– in a non-discriminatory manner


Patents in the US

114 612

98 1022

99 754

4

24

0 1 2 3 4

Brazil

India

China

1980 1999 (Total by1999)

1


Using Knowledge

• Effective use depends on perceived costs and benefits of using it– Links back to economic incentive regime– Not just competitive pressures, but finance, rule of law

• Also depends on education, skills, and other absorptive capabilities of the persons, organizations or firms

• Therefore links back to education & broader institutional issues.


Performance Indicators:

1. Average Annual GDP growth 1990-98 (%) (World Development Indicators (WDI), 2000)

2. Human Development Index 1998 (index of literacy, life expectancy and income)(Human Development Report 2000, UNDP)

Annex: Standard 15-Variable Score Card Indicators


Economic Incentive Regime:

3. Gross Domestic Investment as % of GDP (annual average growth, 1990-98) (SIMA)

4. Tariff & Non-tariff Barriers (composite of average tariff rate, non-tariff barriers and corruption in customs services) (Heritage Foundation, 2000)



Institutional Regime (Governance):

5. Rule of Law (World Bank, 1999)

6. Control of Corruption (World Bank, 1999)

These measures capture the respect of citizens and the state for the rules that govern them.(Kaufmann, Kraay, and Zoido-Lobaton).



Human Resources:

7. Adult Literacy Rate 1998 (% age 15 and above) (UNDP, 2000)

8. Secondary Enrollment, 1997(WDI, 2000)

9. Tertiary Enrollment, 1997(WDI, 2000)



Innovation System:

10. FDI as % of GDP 1990-98 (SIMA)

11. Total Expenditure for R&D as % of GNP 1987-97 (WDI, 2000)

12. High Technology Exports as % of Manufactured Exports 1998 (WDI, 2000)


© Carl Dahlman, WBI© Carl Dahlman, WBI© Knowledge for Development , WBI© Knowledge for Development , WBI

Information Infrastructure:

13. Telephone per 1000 persons, 1998 (telephone mainlines + mobile phones) (WDI, 2000)

14. Computers per 1,000 persons, 1998 (WDI, 2000)

15. Internet hosts per 10,000 persons, July 1999 (WDI, 2000)



UK

0

5




Rule of Law



Adult literacy rate


Tertiary Enrollment

Telephones



Korea

0

5




Rule of Law

Control of Corruption Foreign Direct Investment

R&D expendituresHigh-Technology products Adult literacy rate


Tertiary Enrollment

Telephones



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