1. Innovation in Latin America: Diagnosis and Questions
William F. Maloney
World Bank
Mexico, DF, July 2010

2. MEn Engineers in North America ~1900
Bottom quintile
Quintile 2
Quintile 3
Quintile 4
Top quintile
Source: Maloney and Valencia (2010)

3. Throughout LA, there was a lack of national innovative capacity
Engineers and GDP/Capita ~1900
Engineers per each 100,000 workers
GDP/Capita (US$ ~1990)
Source: Maloney and Valencia (2010)

4. Source: Calderón, Fajnzylber and Loayza (2002)
Half of the GDP difference is represented by Total Factor Productivity (TFP)
Source: Calderón, Fajnzylber and Loayza (2002)

5. But this has been a problem for centuries:
Peru and Mexico were among the richest countries in colonial times
The allocation of natural resources is not to blame
There is no curse: Sala i Martin et al. (2004), Lederman and Maloney (2007), Brunnschweiler (2009) and Nunn (2008)
But we have had a relatively poor overall performance
And we have not diversified the economy beyond the natural advantages we have

6. Innovation Diagnoses: 3 Big Questions

7. 1. Do we have an innovation problem or another distortion?
The TFP is a measure of our ignorance, nothing more
Allocation of production factors
Micro rigidities that prevent the entry of more productive companies?
Haltiwanger– poor allocation could reduce the EU's GDP by EU 40%
Hsieh and Klenow (2007) India and Chile 35-60% more productive with a good allocation
Allocation within the company (labor markets?)
Chile– new restrictions cost .5% in annual growth
Technological progress (innovation): knowledge accumulation.

8. 2. Is it a question of knowledge accumulation or of accumulation in general?
R&D and K/L
R&D
K/L
Source: Rodriguez and Maloney (2005)

9. Returns on R&D vs. Distance to the Frontier:
Complementary factors are key
Distance to the economic frontier (z)
Poor countries: low complementarity
Advanced: innovative
Distance to the technological frontier
Medium income: imitator/innovative
Source: Goñi, Lederman and Maloney (2008) 9

10. 3. What kind of innovation is required?
Source: Goñi, Lederman and Maloney (2008)

11. We should look at the PRODUCTIVITY system as a whole
We should place innovation in the context of accumulation in general with the company at the center
Financial markets? Entrepreneurship? Marketing? Other barriers?
Kiwis– how to leave the island
Without this, there is a risk that increasing the C&T would be "pushing on a thread"

12. Innovation System Structure
Accumulation/Allocation
Innovation Supply
Demand
Universities/
Research centers/
Technology
extension
The company K A
Barriers for accumulation/allocation
Financing
Entry/Exit barriers
Regulatory/investment climate
Barriers to knowledge accumulation
Market failures (&IP)
Venture capital (VC)
Restrictions (employment, etc.)
Macro Framework
Competitive Structure
Trade Regime
International Trade
Entrepreneurial Spirit
Human capital
Quality systems
Dissemination of best practices/processes
Science and technology system
International links

13. How do we know if the system is working?

14. The raw material of innovation: Education Performance
Standardized mathematics tests
Education Expenditure / Per capita GDP

15. New Measurements of Management Quality
Source: Bloom & Van Reenen (2009) – Definition: “Average country management score, (monitoring, targets and incentives management scored on a 1 to 5 scale)”

16. The efficiency of generating knowledge is low in LA
Patents = B1R&D + Bp Country*R&D
Source: Bosch, Lederman and Maloney (2009)

17. University/Business Cooperation is low
University/Business Cooperation is low... (business interviews - rating from 1 to 7)
Quality of scientific inst.
Coop. Univ/Business

18. Students studying in the US / Tertiary Students
...And the Links between University/Global Knowledge Centers are Weak
Students studying in the US / Tertiary Students
Source: Maloney (2009)

19. END