1. World Bank Knowledge Economy Products and Strategy: Emerging Lessons
Carl Dahlman
PREM Learning Week
April 9, 2003
Washington DC

2. Structure of Presentation
I. Why Focus on Knowledge Economy?
Knowledge Economy Definition
Is KE Agenda Relevant for Diversity of Bank Clients?
Knowledge Economy Framework and ESW
Knowledge Economy Work Across the Bank
Two WBI Tools: KAM and K4D Community
Emerging Lessons from Knowledge Assessment
Possible Follow-Up projects
Annex: SWOT Analysis of Russia
©© Knowledge for Development, WBI

3. Why focus on Knowledge Economy?
Knowledge has always been important for development.
Are giving it more attention because we are in period of speed-up in creation and dissemination of knowledge.
Bottom line is constant restructuring and upgrading in an increasingly competitive international environment
While this opens up opportunities for leapfrogging, it also raises risks that developing countries may fall behind because of an increasing knowledge divide.
©© Knowledge for Development, WBI

4. The Knowledge Economy Definition
The aim of the Knowledge Economy Program of t is to help countries develop these strategies to reduce the risk and increase the benefits.
There are many definitions of the “Knowledge Economy”, many emphasizing just information technology and high technology
We take a broader definition:
“An economy that makes effective use of knowledge for its economic and social development. This includes tapping foreign knowledge as well as adapting and creating knowledge for its specific needs.”
©© Knowledge for Development, WBI

5. Is KE Relevant for Diversity of Bank Clients?
Yes, it is about making effective use of knowledge across all sectors, and any country can do better.
Middle income countries are more aware of the need to keep up, and can do more to take advantage of new global knowledge as well as to develop their own knowledge
But even very poor countries need to make more effective use existing local knowledge and global knowledge.
Key issues and policy agenda will be different according to the capabilities and needs of each country.

6. KE Framework and ESW
To Analyze the KE we have developed a framework which cut across different networks
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 for Development, WBI

7. Challenge for ESW in this Area
In Bank (as in client governments) efforts are too compartmentalized into different sectoral silos
It is hard to work in more coherent and synergistic way across different functional areas, although this is required to develop effective strategies
In many ways PREM is best placed to play the lead coordinating role as it is the most cross sectoral
But it is hard to accomplish in practice. Most work being done by FPSI and HD
Ideal is to have cross sectoral team expertise to undertake this kind of work
Functionally, the Country Director is the most appropriate internal client as effective approach requires systemic integration as part of broad diagnostic

8. World Bank KE Program to Date
World Bank Institute started program in Consists of:
Intense one week policy forums for high level policy makers, as well as training for Bank staff Regional policy conferences and seminars on KE
Detailed country knowledge assessment (Korea, China, Russia)
KAM Web-based tool on country knowledge assessments
A K4D Community of practice
Regions of the Bank have been carrying the work further:
The Latin America and Caribbean region has produced two major regional reports and is undertaking country specific reports in Argentina, Chile, and Mexico
The EAP Region has been developing analytical tools for economy wide as well as firm based assessments,
The Middle East and North Africa Region organized a conference in September, is supporting country specific work on: Jordan, Morocco, Algeria
The Europe and Central Asia Region has organized two regional conferences and set up a KE unit to do detailed country specific knowledge assessments: Lithuania, Poland, Turkey, Latvia
©© Knowledge for Development, WBI

9. See www.k4dcommunity.org
A community of practice focused on K4D issues, and was launched October, 2002 to provide:
Cross thematic dialogue and exchange of experiences as there is too much compartmentalization.
A platform for cross regional exchange of experience as colleagues in various regions are doing work in this area.
Links to work done outside Bank by other institutions and countries through link to Knowledge Economy page on the Global Development Gateway and a growing global network of persons working in this area.
See
©© Knowledge for Development, WBI

10. A KE Benchmarking Methodology
KAM: 69 structural/qualitative variables to benchmark performance on 4 pillars
Variables normalized from 0 (worst) to 10 (best) for 100 countries
www1.worldbank.org/gdln/kam.htm
Basic scorecard for 14 variables at two points in time, 1995 and 2002
Aggregate knowledge economy index (KE)
©© Knowledge for Development, WBI

11. Knowledge Economy Index
ECON. INCENTIVE REGIME:
Tariff & Non-tariff barriers
Property Rights
Regulation
INNOVATION:
Researchers in R&D
Manuf. Trade as % of GDP
Scient. & Tech. Pub. per
million people
INFORMATION INFR.:
Tel. Lines per 1000 people
Computers per 1000 people
Internet hosts per 10,000 people
EDUCATION:
Adult literacy rate
Secondary Enrollment
Tertiary Enrollment
POLAND

13. Knowledge Economy Index

14. Emerging Lessons from Knowledge Assessments
Benchmarking is just first step, but it helps to put country in global context
Need to deepen analysis with more detailed country knowledge
Greatest value of approach is systems integration. Helps to develop stakeholder awareness
If analysis is done together with key stakeholders, can help develop stakeholder buy in and help facilitate consensus for concerted action
Hardest but most important part is reform of the economic and institutional regime
Implementation of plans needs to be continuously monitored and adjusted to changing circumstances (Korea example)

15. Possible Follow Up Projects
Knowledge Economy Competitiveness Project
Hasn’t been done yet, but highly desirable because of the need to integrate actions across sectors
Sectoral Projects, but keeping links to policies and actions needed in other sectors
Economic restructuring projects (financial sector, trade and competition policy, labor market reform, etc)
Institutional reform projects, especially judicial and government reform in order to strengthen rule of law and improve government effectiveness
Levering Knowledge for basic needs project for low income countries (preventive medicine, basic education, upgrading local knowledge to improve agricultural productivity)
Life Long Learning Strategy-concrete follow up in China, possible for various ECA countries
Restructuring R&D Infrastructure and Improving the Innovation System-natural follow-up for most ECA countries
ICT: telecom policy reform, e-government, e-commerce, e-education, projects to reduce digital divide

16. A N N E X
-Russia SWOT Analysis

17. Russia: Current Situation and Risks
Russia’s growth is acknowledged as unsustainable
Russia is too dependent on natural resource sector (only sector growing, accounts for 80% of exports)
Industrial sector is technologically outmoded and not competitive
Russian economy suffers from overvalued exchange rate because of strong natural resource exports
Only dynamic actors are natural resource based industrial groups
High human capital and strong science base are depreciating
Russia risks becoming just a natural resource exporting economy
Russia needs to diversify and upgrade its economy to improve international competitiveness

18. Russia: Summary of Strengths &Weaknesses
ECONOMIC & INSTITUTIONAL
REGIME
Reform oriented govt.
Strong trade balance
Strong natural resource based groups
Poor investment climate
Poor rule of law
Weak financial system
Dutch disease
INNOVATION
SYSTEM
High S&T manpower
Strong basic research
High S&T capability
Poor linkages with productive sector
Insufficient use of global knowledge
Weak diffusion systems
EDUCATION &
HUMAN RESOURCES
High average educational levels
High number of S&T and technical workers
Poor link to labor market
Weak Life Long Learning
Lack of flexibility of educational system
INFORMATION & COMMUNICATION
INFRASTRUCTURE
Software development capabilities
Strong ICT capability
Low penetration ratios
High prices
Poor application and use

19. Russia: Summary of Opportunities & Threats
ECONOMIC & INSTITUTIONAL
REGIME
Reverse capital flight and tap FDI by improving investment climate
Develop financial system
Continued capital flight
Big industrial groups may capture government
INNOVATION
SYSTEM
Tap global knowledge to increase value added in natural resources and diversify economy
Harness potential of strong S&T base
Falling behind global advances in knowledge
Continued loss of scientific talent
EDUCATION &
HUMAN RESOURCES
Launch major re-skilling program
Institute LL learning
Reform higher education to market needs
Continued brain drain
Resistance from established institutions
Rigid university curri-culums
INFORMATION & COMMUNICATION
INFRASTRUCTURE
Expand penetration ratios
Focus on applications
Risk of digital divide
Difficulty of changing processes to use ICT

20. Russia: Tentative Recommendations
Economic and
Institutional
Regime
Improve investment climate by strengthening rule and application of law, reducing administrative barriers
Strengthen financial system (banks and stock market)
Improve labor mobility across industries and regions
Increase tax on natural resources and strengthen economic competition
Support development of new SMEs
Innovation
System
Tap global knowledge more effectively through capital goods imports, technology licensing, strategic FDI
Link S&T base to economy’s needs through better S&T policy, technology forecasting, matching grants, stronger intellectual property rights
Support technology parks, incubators, university spin-offs, venture capital; promote technology dissemination
Education &
Human
Resources
Launch major program to re-skill working population to needs of labor market and restructuring economy
Improve teaching methods in secondary schools to nurture critical thinking and problem solving
Move towards establishment of Life Long Learning
Information &
Communications
Infrastructure
Establish more competitive telecom regulatory regime
Address risk of digital divide by expanding access for low income and rural population
Strengthen application, especially in e-government, e-business and e-education

21. Russia: Emerging Lessons
Radically improving international competitiveness requires explicit government strategy for building a knowledge economy in Russia
Important to find the most advantageous ways of participating in globalization
Labor intensive export strategies are being pre-empted by size and strength of some of the new developing country players such as China
Now critical to engage and move up in global value chains
This requires strengthening ability to create, acquire, adapt, disseminate, and use knowledge
Knowledge strategy has to include measures to build a favorable economic and institutional regime