1. ENHANCING INNOVATION IN LATIN AMERICA. WHY? HOW? Guillermo Perry Chief Economist for Latin America World Bank Barcelona, June 2005

2. Should LAC worry about enhancing innovation? Low TFP growth, due to several factors: Limited entry and exit of formal firms Low quality of education. Low levels of innovation (broadly understood) by firms. Specifically, low levels of R&D, patenting and University/firm collaboration. Heterogeneity: different priorities depending on country context ( GDP per capita, skills, institutions )

3. Should LAC worry about enhancing innovation? All forms of innovation ( transfer, adaptation and creation ) share appropriability and spillover issues. Policies and instruments are bassically the same. Using wisely natural wealth advantages require skills and R&D ( Scandinavia, Australia, NZ, Canada, US, Chile and Costa Rica recently ). Specially true for tropical agriculture

4. Should LAC worry about enhancing innovation?

5. Should LAC worry about enhancing innovation? LAC lags in innovation when compared to peers

6. Should LAC worry about enhancing innovation? LAC not among the R&D superstars

7. Should LAC worry about enhancing innovation? Low efficiency of converting R&D into patents Patents = B 1 I&D + B p country*R&D

8. ..due, inter alia. to disconnects between Universities and firms (interviews with entrepreneurs: score 1-7)  Finland 40% of firms have formal arrangements with U  Chile 25% and not very fruitful  Less than 20% financed and done by firms (most by U)  60% R&D devoted to basic science, US 15%

9. Priority: Horizontal Policies to enhance both investment and innovation Deal with weaknesses in basic institutions (rule of law, protection of property rights) Reduce over-regulation (entry and exit barriers, employment and deployment of formal labor) Continue improving macro/financial policies Foster further trade openness and competition Overcome infrastructure and access to finance bottlenecks

10. Specific policies and institutions dealing with innovation. Issues What is the right balance between “strong” IPR and “efficient subsidies”? Tax credits are likely to be inefficient: weak tax enforcement and administration, proliferation of tax incentives and loopholes

11. Specific policies and institutions dealing with innovation. Issues How to design “efficient subsidies”? Governance: public/private/academia partnership; Selection criteria and level of subsidies : Quality of proposals, technical capacity, cooperation between firms and Universities, strategic relevance, SME’s,? Strategic areas: revealed comparative advantages?: agriculture, light manufactures, electronics, ITC, services; public goods: health, environment, utilities External “Peer reviewing” and Monitoring &Evaluation

12. Specific policies and institutions dealing with innovation. Issues Universities and Public Research Institutes : From entitlements to competition: balance between basic vs competitive financing Incentives for researchers: reward structure, IPR Infrastructure: labs, Technology Transfer Office’s Culture, Governance Promote all type of links between firms and Universities student practices, specialized training, consultancy, research Supporting Public/Private Institutions: Certification of Standards Diffusion (eg, INIA’s in agriculture)

13. Specific policies and institutions dealing with innovation. Issues Clusters: Support existing and incipient clusters (vertical or horizontal) Public/private cooperation: overcoming infrastructure and regulation bottlenecks, skills (technical education, training), support to R&D, FDI attraction, market intelligence Incorporate SME’s? Specialized Institutions (Fundacion Chile, Inbio Costa Rica): how replicable? Incubators, Scientific Parks: best practice?

14. Specific policies and institutions related to innovation. Issues Support a few elite scientific research groups at Universities? Support a few Ph. D programs in basic sciences, engineering?. Venture capital Export promotion schemes? Organizational and managerial change (and entrepreneurship): business schools; basic management and business training in all professions?