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Competitiveness, FDI, trade & innovation Competitiveness, FDI, trade and innovation: A global perspective Sanjaya Lall Professor of Development Economics.

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Presentation on theme: "Competitiveness, FDI, trade & innovation Competitiveness, FDI, trade and innovation: A global perspective Sanjaya Lall Professor of Development Economics."— Presentation transcript:

1 Competitiveness, FDI, trade & innovation Competitiveness, FDI, trade and innovation: A global perspective Sanjaya Lall Professor of Development Economics University of Oxford

2 Competitiveness, FDI, trade & innovation 2 International competitiveness has become an essential precondition for growth. The context for competitiveness is changing significantly, rapidly and irrevocably. The change is driven by technical progress, but its impact is very uneven. It is uneven across activities, regions, countries and particular groups within countries. This is driving a wedge between the technological haves and have-nots in the developing world – and it needs to be countered.

3 Competitiveness, FDI, trade & innovation 3 I illustrate this for manufacturing industry with data for production, exports and technological performance for Technological performance is shown by dividing production and exports into categories according to the sophistication of technology – a simple but useful method I also consider some structural drivers of competitive performance: skills, FDI, domestic technological effort, licensing and ICT infrastructure. This is for benchmarking reasons – it is NOT meant to reduce the importance of other factors like macro or trade policy, governance, business costs and so on.

4 Competitiveness, FDI, trade & innovation 4 Let me start with some basic scene setting

5 Competitiveness, FDI, trade & innovation 5 Globalization is driven by rapid and pervasive technical change The pace and spread of innovation make it imperative to constantly access new technologies, but raises minimum entry levels in capabilities, institutions and infrastructure Innovation changes structure of industrial and export activity, shifting the dynamics of different activities – the key to success is good positioning to exploit these changes The death of distance opens opportunities: new markets and narrower forms of specialization in fragmented production & global value chains

6 Competitiveness, FDI, trade & innovation 6 Recent growth of hi-tech & other manufacturing production in (US National Science Board)

7 Competitiveness, FDI, trade & innovation 7 Globalization raises the role of MNCs in innovation, technology transfer, production and particularly exports. Around 2/3 of world trade is handled by MNCs, about 1/3 is within companies Thus: globalization offers new markets and mobile resources but competing for these calls for more than primary resources or cheap labour – it requires the ability to harness innovation Technical change alters the organisation of production and trade Harnessing innovation and globalization needs more than opening up to trade or FDI: it needs building capabilities to use new technologies efficiently and moving up the technology scale

8 Competitiveness, FDI, trade & innovation 8 Capability building in developing countries is not innovating at the frontier It is building the specialized skills, technical knowledge, organizational structures and inter-firm linkages to seek, absorb, adapt and improve technologies. This requires strengthening the institutional base: the national innovation system The interacting complex of technology (MSTQ, R&D, technical services, extension), education, training and other institutions that help enterprises to become technologically capable The NIS is as important (or even more so) for less industrialized as it is for more advanced economies: they find it harder to cope with new technologies and to tap dynamic global value chains

9 Competitiveness, FDI, trade & innovation 9 Now consider global patterns of export competitiveness and dynamism

10 Competitiveness, FDI, trade & innovation 10 Evolution of MVA shares by development

11 Competitiveness, FDI, trade & innovation 11 Technological structures: a simple categorisation Primary products Manufactured products RB (Resource based): e.g. food, wood & forestry products, processed minerals, petroleum products LT (Low technology): e.g. textiles, clothing, footwear, toys, sports goods, simple metal products MT (Medium technology): e.g. automotive products, TVs, machinery, chemicals, steel HT (High technology): Advanced ICT and electricals, pharmaceuticals, aerospace, precision instruments

12 Competitiveness, FDI, trade & innovation 12 Growth rates of MVA by technology in industrialized and developing countries

13 Competitiveness, FDI, trade & innovation 13 Developing countries industrial structure still lags ICs but is catching up rapidly

14 Competitiveness, FDI, trade & innovation 14 Technology structure of MVA in developing regions ( )

15 Competitiveness, FDI, trade & innovation 15 Performance in developing world is skewed: regional shares of global MVA, (%)

16 Competitiveness, FDI, trade & innovation 16 LAC was largest regional loser of MVA shares, followed by SSA

17 Competitiveness, FDI, trade & innovation 17 Now consider export competitiveness

18 Competitiveness, FDI, trade & innovation 18 Manufactures drive trade: values of world exports, (current $ billion)

19 Competitiveness, FDI, trade & innovation 19 Resource based Medium Technology Low Technology High Technology Shares of world manufactured exports by technology: note when RB, MT and LT shares peak (1976 to 2000, %)

20 Competitiveness, FDI, trade & innovation 20 Growth rates of manufactured exports by technology

21 Competitiveness, FDI, trade & innovation 21 Role of HT is more evident in the 50 fastest growing world exports over (% shares)

22 Competitiveness, FDI, trade & innovation 22 How are developing countries doing in this dynamic scene? Surprisingly well…

23 Competitiveness, FDI, trade & innovation 23 Growth rates of industrialized and developing countries over the past two decades (% p.a.)

24 Competitiveness, FDI, trade & innovation 24 Developing worlds market shares by technology

25 Competitiveness, FDI, trade & innovation 25 And the values of its exports: HT now far exceeds LT and RB (current $ billion)

26 Competitiveness, FDI, trade & innovation 26 But developing world export performance is also highly concentrated (world market shares)

27 Competitiveness, FDI, trade & innovation 27 Shares of developing world exports by technology

28 Competitiveness, FDI, trade & innovation countries (of which, 8 from E Asia) account for over 75% of developing world manufactured exports ($ m.)

29 Competitiveness, FDI, trade & innovation 29 Industrial performance is clearly diverging, but why? Insufficient liberalization, macro instability and poor governance account for part But they dont account for it completely – the data dont suggest that liberalization by itself leads to competitive success Export growth and upgrading require other factors: careful strategy to build domestic capabilities by creating appropriate skills, raising technological effort, and tapping into global production systems via FDI

30 Competitiveness, FDI, trade & innovation 30 Some simple indicators of these structural drivers of industrial competitiveness

31 Competitiveness, FDI, trade & innovation 31 R&D financed by productive enterprises ($ per capita)

32 Competitiveness, FDI, trade & innovation 32 R&D financed by productive enterprises at the national level (% of GDP, )

33 Competitiveness, FDI, trade & innovation 33 Skills: tertiary technical enrolments (per 1000 people)

34 Competitiveness, FDI, trade & innovation 34 National tertiary technical enrolments ( , % population)

35 Competitiveness, FDI, trade & innovation 35 Annual inward FDI (US$ per capita)

36 Competitiveness, FDI, trade & innovation 36 Developing world FDI distribution 10 COUNTRIES GET 80% OF FDI IN THE DEVELOPING WORLD: AND THEIR SHARE IS RISING OVER TIME LARGE PART OF RECENT FDI, PARTICULARLY IN LAC, IS NOT IN MANUFACTURING OR EXPORT-ORIENTED ACTIVITIES: THE MAJOR EXCEPTION IS MEXICO

37 Competitiveness, FDI, trade & innovation 37 Reliance on FDI varies greatly in EA (FDI % of gross domestic investment)

38 Competitiveness, FDI, trade & innovation 38 Technology licence payments abroad (US$ per capita)

39 Competitiveness, FDI, trade & innovation 39 Conclusions: East Asian lessons There are many ways to build export competitiveness MNCs play a critical role in all strategies but countries access their technologies, skills and marketing prowess in different ways Korea and Taiwan used arms length strategies to tap FDI, building domestic skills, innovation and institutions by coherent industrial and technology strategies. Singapore used FDI targeting with skill & infrastructure development to plug into global production and upgrade rapidly. These have the best technology systems New Asian Tigers had weak capabilities, shallow technology base, inadequate skill creation systems. They are upgrading rapidly but many gaps remain All strategies have worked well so far, but their sustainability remains to be seen…

40 Competitiveness, FDI, trade & innovation 40 Autonomous strategies are less feasible, more risky: Acceleration of technical change Spread of global production networks Problems in managing selective industrial strategies New international rules of the game FDI dependent countries are becoming less passive as policies grow more standardized and governments realize need to target Importance of building strong technology systems is increasingly accepted as need to move up technology ladder and stay ahead of competition mounts (threat of China galvanizing EA and other regions) Least developed countries unduly neglect technology policy and institutions: even low technology and resource based industrialization needs higher capabilities and stronger technology bases


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