Competitiveness,%20FDI,%20trade%20and%20innovation:%20A%20global%20perspective

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Competitiveness, FDI, trade and innovation A
global perspective

• Sanjaya Lall
• Professor of Development Economics
• University of Oxford
• sanjaya.lall_at_economics.ox.ac.uk

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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.
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• I illustrate this for manufacturing industry with
  data for production, exports and technological
  performance for 1980-2000
• 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.

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Let me start with some basic scene setting
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Globalization is driven by rapid and pervasive
technical change
The death of distance opens opportunities new
markets and narrower forms of specialization in
fragmented production global value chains
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 pace and spread of innovation make it
imperative to constantly access new technologies,
but raises minimum entry levels in capabilities,
institutions and infrastructure
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Recent growth of hi-tech other manufacturing
production in 1980-98 (US National Science Board)
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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
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

• 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
  

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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, RD,
  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

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Now consider global patterns of export
competitiveness and dynamism
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Evolution of MVA shares by development
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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

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Growth rates of MVA by technology in
industrialized and developing countries
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Developing countries industrial structure still
lags ICs but is catching up rapidly
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Technology structure of MVA in developing regions
(1980-2000)
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Performance in developing world is skewed
regional shares of global MVA, 1980-2000 ()
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LAC was largest regional loser of MVA shares,
followed by SSA
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Now consider export competitiveness
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Manufactures drive trade values of world
exports, 1985-2000 (current billion)
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Shares of world manufactured exports by
technology note when RB, MT and LT shares peak
(1976 to 2000, )
Resource based
High Technology
Medium Technology
Low Technology
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Growth rates of manufactured exports by
technology
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Role of HT is more evident in the 50 fastest
growing world exports over 1990-2000 ( shares)
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How are developing countries doing in this
dynamic scene?Surprisingly well
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Growth rates of industrialized and developing
countries over the past two decades ( p.a.)
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Developing worlds market shares by technology
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And the values of its exports HT now far exceeds
LT and RB (current billion)
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But developing world export performance is also
highly concentrated (world market shares)
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Shares of developing world exports by technology
2000
1985
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10 countries (of which, 8 from E Asia) account
for over 75 of developing world manufactured
exports ( m.)
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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

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Some simple indicators of these structural
drivers of industrial competitiveness
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RD financed by productive enterprises ( per
capita)
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RD financed by productive enterprises at the
national level ( of GDP, 1997-2000)
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Skills tertiary technical enrolments (per 1000
people)
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National tertiary technical enrolments (1985-98,
population)
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Annual inward FDI (US per capita)
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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
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Reliance on FDI varies greatly in EA (FDI of
gross domestic investment)
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Technology licence payments abroad (US per
capita)
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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

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• 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