1. Knowledge, Science & Technology for Development: A General Framework and an Application to China Carl J. Dahlman* Columbia University April 12, 2001 *World Bank Institute The World Bank

2. 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

3. Knowledge makes the Difference between Poverty and Wealth... 0 2 4 6 8 195819621966197019741978198219861990 Rep. of Korea Ghana Thousands of 1985 international dollars Difference attributed to knowledge Difference due to physical and human capital © Knowledge for Development, WBI

4. 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 © Knowledge for Development, WBI

5. 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 © Knowledge for Development, WBI

6. 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 © Knowledge for Development, WBI

7. 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 © Knowledge for Development, WBI

8. 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 for Development, WBI

9. 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 for Development, WBI

10. 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 © Knowledge for Development, WBI

11. Data for the KAM: 61 variables 1Performance: 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 © Knowledge for Development, WBI

12. 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 © Knowledge for Development, WBI

19. Human Development Brazil India China © Knowledge for Development, WBI

20. % Brazil India China © Knowledge for Development, WBI

21. Brazil India China © Knowledge for Development, WBI

22. 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 © Knowledge for Development, WBI

26. % Brazil India China © Knowledge for Development, WBI

27. Brazil India China 1980 1999 © Knowledge for Development, WBI

28. China Manufacturing Exports % of total exports © Knowledge for Development, WBI

29. Brazil India China © Knowledge for Development, WBI

30. 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 © Knowledge for Development, WBI

32. 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 © Knowledge for Development, WBI

33. 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 © Knowledge for Development, WBI

34. 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 © Knowledge for Development, WBI

35. Secondary Enrollment % Brazil India China © Knowledge for Development, WBI

36. Brazil China India Secondary * Primary * China’s secondary level includes both formal & informal education sectors. Tertiary © Knowledge for Development, WBI

37. % Brazil India China © Knowledge for Development, WBI

39. 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 © Knowledge for Development, WBI

40. 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 © Knowledge for Development, WBI

41. Brazil India China © Knowledge for Development, WBI

42. Brazil India China © Knowledge for Development, WBI

43. Brazil India China © Knowledge for Development, WBI

44. Brazil India China © Knowledge for Development, WBI

45. 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 © Knowledge for Development, WBI

46. 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 © Knowledge for Development, WBI

47. R&D Spending: Largest LDCs (1996 est.) © Knowledge for Development, WBI

48. Top R&D Performers in US (1997 in millions) © Knowledge for Development, WBI

49. Royalty Receipts and Payments by Country Groupings (% out of $66 billion in 1999) © Knowledge for Development, WBI

50. Share World Technical Articles & Patent Apls by Residents (1998) © Knowledge for Development, WBI

52. Brazil India China 1982 1995 © Knowledge for Development, WBI

53. Brazil India China 1988 1994 © Knowledge for Development, WBI

54. 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 © Knowledge for Development, WBI

55. 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, © Knowledge for Development, WBI

56. 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 © Knowledge for Development, WBI

57. Brazil India China © Knowledge for Development, WBI

58. Brazil India China 1980 1999 © Knowledge for Development, WBI

59. 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 © Knowledge for Development, WBI

60. Increasing Share of Service Employment Brazil India China © Knowledge for Development, WBI

61. 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 © Knowledge for Development, WBI

62. Brazil India China 1980 1999 (Total by1999) 1 © Knowledge for Development, WBI

63. 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. © Knowledge for Development, WBI

64. 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 © Knowledge for Development, WBI

65. 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) Score Card Indicators © Knowledge for Development, WBI

66. 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). Score Card Indicators © Knowledge for Development, WBI

67. 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) Score Card Indicators © Knowledge for Development, WBI

68. 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) Score Card Indicators © Carl Dahlman, WBI © Knowledge for Development, WBI

69. 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) Score Card Indicators © Knowledge for Development, WBI