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Technology absorption: an overview Sanjaya Lall Professor of Development Economics Oxford University, UK

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  • Technology absorption: an overviewSanjaya Lall Professor of Development Economics Oxford University, UK

  • What is technology absorption?Most technology in latecomers comes from abroad, in mixture of two forms: Embodied: in capital goods, patents, blueprints, designs, models and so onTacit: knowledge that can be transferred only by close interaction and learning by new userUsing technology efficiently thus needs conscious effort by the enterprise & also the system in which it works (suppliers, customers, technology support, training institutions and so on)

  • Technology flows take many formsNon-contractual: Public knowledge, fairs, conferences, migration, export activity and informal networksContractual: FDI related: (internalized) transfers within multinationals or joint ventures with MNCs Arms length: equipment imports, turnkey projects, licensing, subcontracting, franchising and other contracts

  • Role of internalized technology flows is growingInnovation is highly concentrated, by region, country and enterpriseMNCs lead in innovation: most R&D is performed by large firms and most innovative firms are globalized MNCs dominate technology flows in all forms, but form depends on nature of technology: newest and most valuable technology is internalized, others licensed

  • Concentration of R&D by region

    US: 41%Japan: 24%EU big 3: 20%

  • Concentration of R&D in US by firm (2001)

    Only 68 manufacturing firms out of 16.8 thousand with R&D (0.4%) account for 49% of total enterprise R&D spending in the US. Only 329 manufacturing firms (2%) account for 71% of R&D.The level of concentration has been stable or rising over time despite the rise of technology-based SMEs

    Chart3

    0.3539.3

    0.448.7

    1.661.9

    1.9670.7

    % Numbers

    % R&D

    Share of leading R&D performing US firms in number of firms and R&D

    Data

    R&D (millions US$)Value of R&DShare19972001

    19972001GDP (millions)199720011997 2001Percentage ChangePercentage IncreaseRank1997200119972001Top 5Top 10Top 5Top 101997

    Argentina0.419586150.424694759Argentina292858.877329543268696.7088342921228.79528832021141.1408400247Argentina-7.1333646156China108.014759651USA212,725.3USA281,022.237.5%42.8%77.3%86.6%78.0%87.2%1United States212,725.320Finland3,333.639Slovenia258.8

    Australia1.6521788151.529991194Australia416533.568852143368761.82540686881.87938193865642.0234555577Australia-18.0162402967Malaysia95.61637116942Japan122,553.0Japan128,950.021.6%19.6%2Japan122,553.021Israel3,309.240Malaysia220.4

    Austria1.7089378351.913099193Austria205753.153606697189579.5115927373516.19348869053626.844106374Austria3.146886485Venezuela, RB90.6007792073Germany48,261.8Germany46,302.78.5%7.1%3Germany48,261.822Denmark3,278.541Romania204.4

    Belgium1.874947892.17Belgium244891.926983844227543.3866363614591.59601776394937.691490009Belgium7.5375854258Mexico76.04703055374France31,193.3France29,072.75.5%4.4%4France31,193.323Norway2,606.742Slovak Rep.175.7

    Bolivia0.320.341867355Bolivia7925.73379938018023.45625041225.36234815827.4295776629Bolivia8.1507811973Iceland73.59062961225UK24,163.2UK27,191.94.3%4.1%5UK24,163.224India2,417.143Egypt155.5

    Brazil0.7748235351.04Brazil807745.358036052508994.4827773416258.60113693335293.5426208844Brazil-15.4197159227Costa Rica71.72702323276Korea12,809.7Canada13,447.92.3%2.0%6Korea12,809.725Singapore1,429.244Iceland133.0

    Bulgaria0.5194429790.47Bulgaria10370.964213696613594.683701275153.871245462663.895013396Bulgaria18.6068984432Israel69.03969810567Italy12,266.0China12,776.22.2%1.9%7Italy12,266.026Mexico1,382.145Uruguay83.9

    Canada1.6939365891.936407586Canada627595.197805602694475.13205717310631.06468643613447.8691400386Canada26.4959769946Tunisia66.14440223318Canada10,631.1Korea12,629.11.9%1.9%8Canada10,631.127Argentina1,228.846Lithuania66.3

    Chile0.5412394910.542282897Chile75285.683281659966450.0236242795407.4758489895360.3471131669Chile-11.5660194192India54.42144212459Sweden9,084.2Italy12,119.51.6%1.8%9Sweden9,084.228Poland1,059.247Tunisia54.3

    China0.6837758351.086675075China898243.6582588291175715.797924436141.973074593912776.2105288821China108.01475965Estonia54.157910544110Netherlands7,694.9Sweden9,370.11.4%1.4%10Netherlands7,694.929Ireland1,031.048Bulgaria53.9

    Colombia0.2736523290.165525769Colombia106718.83993160681719.3632406719292.0385909546135.266604426Colombia-53.6819418338Hungary48.186057357411Switzerland6,987.7Netherlands7,258.41.2%1.1%11Switzerland6,987.730South Africa1,011.949Peru48.7

    Costa Rica0.290.39Costa Rica12828.976089823716381.890865601437.204030660563.8893743758Costa Rica71.7270232327Portugal37.969647150412Australia6,881.9Switzerland6,489.61.2%1.0%12Australia6,881.931Turkey930.150Costa Rica37.2

    Czech Republic1.2432711651.313235703Czech Republic52975.970483428557185.9193438141658.6349653994750.9859099118Czech Republic14.0215672359United States32.105665139313Brazil6,258.6Taiwan6,100.61.1%0.9%13Brazil6,258.632Portugal659.651Estonia26.5

    Denmark1.9396219652.4Denmark169025.810260184159233.5672845423278.46174232583821.605614829Denmark16.5670340297Latvia31.63768709614China6,142.0Australia5,642.01.1%0.9%14China6,142.033Czech Rep.658.652Bolivia25.4

    Egypt, Arab Rep.0.2049551310.194531947Egypt, Arab Rep.75870.204141858298475.7750566796155.4998762889191.5668425411Egypt, Arab Rep.23.1942089685Canada26.495976994615Taiwan5,223.1Israel5,593.80.9%0.9%15Taiwan5,223.134Ukraine597.953Latvia23.9

    Estonia0.5748258810.73Estonia4613.83906058645600.692259282626.521541027940.8850534928Estonia54.1579105441Singapore25.090246464916Spain4,598.7Spain5,584.80.8%0.9%16Spain4,598.735Chile407.554Moldova15.6

    Finland2.7176924893.419961499Finland122664.645219764121512.1117484413333.6478497964155.6674384185Finland24.65826103Finland24.6582610317Belgium4,591.6Brazil5,293.50.8%0.8%17Belgium4,591.636Hungary330.655Madagascar8.7

    France2.2183976442.20177632France1406120.353878881320421.2042845331193.340802253529072.7214001956France-6.7983080604Egypt, Arab Rep.23.194208968518Russia3,994.3Belgium4,937.70.7%0.8%18Russia3,994.337Venezuela292.856Uganda3.5

    Germany2.2862433812.498250121Germany2110964.94461541853406.2335012748261.796321499946302.723471067Germany-4.0592621903Slovenia22.900641366619Austria3,516.2Finland4,155.70.6%0.6%19Austria3,516.238Colombia292.0

    Hungary0.7230004570.9451815Hungary45725.34988199751830.7794338371330.5944886117489.8949385144Hungary48.1860573574Lithuania21.859382444820Finland3,333.6Denmark3,821.60.6%0.6%2001

    Iceland1.8393496993.036423003Iceland7230.57373863527603.2815120616132.9955362976230.8677888151Iceland73.5906296122Spain21.443893530421Israel3,309.2India3,732.50.6%0.6%1United States281,022.220Denmark3,821.639Slovenia318.119972,001.0

    India0.590.78India409674.476924402478524.2164316222417.0794138543732.4888881667India54.4214421245Uganda18.7222Denmark3,278.5Austria3,626.80.6%0.6%2Japan128,950.021India3,732.540Iceland230.9Total567,468.2656,794.3

    Ireland1.2869868841.159650035Ireland80109.9401456099102441.1414662961031.00442245431187.9587328683Ireland15.2234371644Bulgaria18.606898443223Norway2,606.7Russia3,608.00.5%0.5%3Germany46,302.722Austria3,626.841Egypt191.6Top 5438,896.677.3%512539.578.0%

    Israel3.2058680684.962819078Israel103222.301082844112714.411394063309.17078946975593.8123123198Israel69.0396981056Peru17.798024609924India2,417.1Norway2,778.00.4%0.4%4France29,072.723Russia3,608.042Romania159.9Top 10491,382.586.6%572882.287.2%

    Italy1.0512585881.11Italy1166795.105742071091844.0103444312266.033753477212119.4685148232Italy-1.1948869667Taiwan16.800606383625Singapore1,429.2Mexico2,433.20.3%0.4%5UK27,191.924Norway2,778.043Colombia135.3

    Japan2.8348656733.088182396Japan4323061.651744064175595.18764673122552.990787919128949.995513129Japan5.2197867095Denmark16.567034029726Mexico1,382.1Singapore1,787.80.2%0.3%6Canada13,447.925Mexico2,433.244Slovak Rep.125.9

    Korea, Rep.2.688361942.956004844Korea, Rep.476486.034752809427234.49742253112809.669207709712629.0724390491Korea, Rep.-1.4098472469Poland16.566454559327Argentina1,228.8Poland1,234.70.2%0.2%7China12,776.226Singapore1,787.845Tunisia90.2

    Latvia0.4241489850.41Latvia5627.36316695357663.369426751623.868403754931.4198146497Latvia31.637687096Ireland15.223437164428Poland1,059.2Ireland1,188.00.2%0.2%8Korea12,629.127Poland1,234.746Lithuania80.7

    Lithuania0.6880800790.68Lithuania963011874.566.262111607780.7466Lithuania21.8593824448Czech Republic14.021567235929Ireland1,031.0Argentina1,141.10.2%0.2%9Italy12,119.528Ireland1,188.047Bulgaria63.9

    Madagascar0.2451306710.134428333Madagascar3545.68695820764529.5566573738.69156623226.0890075068Madagascar-29.9434952905United Kingdom12.534520788330South Africa1,011.9Turkey1,045.80.2%0.2%10Sweden9,370.129Argentina1,141.148Costa Rica63.9

    Malaysia0.220.49Malaysia100168.8478151987976.053735533220.3714651934431.0826633041Malaysia95.6163711694Turkey12.435816771131Turkey930.1Portugal910.00.2%0.1%11Netherlands7,258.430Turkey1,045.849Peru57.3

    Mexico0.3447815270.39Mexico400868.247521627623892.4689851541382.11966506322433.1806290421Mexico76.0470305537Bolivia8.150781197332Portugal659.6South Africa879.10.1%0.1%12Switzerland6,489.631Portugal910.050Uruguay44.4

    Moldova0.8067882340.622066462Moldova1930.07144521191479.386744886515.57158932789.2027687832Moldova-40.90026015Belgium7.537585425833Czech Rep.658.6Czech Rep.751.00.1%0.1%13Taiwan6,100.632South Africa879.151Estonia40.9

    Netherlands2.0416412771.89Netherlands376899.7328853384043.0958112237694.9405194897258.4145108321Netherlands-5.6728964643Norway6.56955318634Ukraine597.9Venezuela558.10.1%0.1%14Australia5,642.033Czech Rep.751.052Latvia31.4

    Norway1.65911331.636234018Norway157116.640213103169779.7757787392606.74307428872777.9944469759Norway6.569553186Japan5.219786709535Chile407.5Hungary489.90.1%0.1%15Israel5,593.834Venezuela558.153Bolivia27.4

    Peru0.08230.106864349Peru59125.736062104253639.109450317848.660480779157.3210851235Peru17.7980246099Sweden3.14713924736Hungary330.6Malaysia431.10.1%0.1%16Spain5,584.835Hungary489.954Moldova9.2

    Poland0.711548640.673258682Poland148861.592267588183391.3627592271059.22263526241234.6982718146Poland16.5664545593Austria3.14688648537Venezuela292.8Chile360.30.1%0.1%17Brazil5,293.536Malaysia431.155Madagascar6.1

    Portugal0.6200657170.826908972Portugal106368.258662882110046.344104303659.5531057384909.9830927565Portugal37.9696471504Italy-1.194886966738Colombia292.0Ukraine359.60.1%0.1%18Belgium4,937.737Chile360.356Uganda4.1

    Romania0.5792132210.398009618Romania35285.886165527940165.459659487204.3805178177159.8623925587Romania-21.7819808534Korea, Rep.-1.409847246939Slovenia258.8Slovenia318.10.0%0.0%19Finland4,155.738Ukraine359.6

    Russian Federation0.9864315021.16428524Russian Federation404926.534140017309886.8700719923994.32289271393607.9670889462Russian Federation-9.6726232241Germany-4.059262190340Malaysia220.4Iceland230.90.0%0.0%

    Singapore1.4982558552.106542421Singapore95393.926320918484871.122620831429.24508641761787.8462011867Singapore25.0902464649Netherlands-5.672896464341Romania204.4Egypt191.60.0%0.0%

    Slovak Republic0.8333333330.615182452Slovak Republic21079.753688719720462.4278652243175.6646140024125.88126548Slovak Republic-28.3399982433France-6.798308060442Slovak Rep.175.7Romania159.90.0%0.0%

    Slovenia1.4215595231.628910254Slovenia18205.82211971319526.8565694249258.8065980832318.0749689432Slovenia22.9006413666Switzerland-7.128300526143Egypt155.5Colombia135.30.0%0.0%

    South Africa0.680.77South Africa148814.161227892114173.9266487721011.9362963497879.1392351955South Africa-13.1230653188Argentina-7.133364615644Iceland133.0Slovak Rep.125.90.0%0.0%

    Spain0.8189331970.957750811Spain561546.045176131583118.7461409744598.68698038795584.8245202582Spain21.4438935304Russian Federation-9.672623224145Uruguay83.9Tunisia90.20.0%0.0%

    Sweden3.6693003624.27Sweden247572.137184513219439.2659989129084.16532592259370.0566581535Sweden3.147139247Chile-11.566019419246Lithuania66.3Lithuania80.70.0%0.0%

    Switzerland2.730776592.639778432Switzerland255886.910680191245838.6480328756987.69985372896489.5956082922Switzerland-7.1283005261South Africa-13.123065318847Tunisia54.3Bulgaria63.90.0%0.0%

    Taiwan1.82.17Taiwan2901722811345223.0966100.6078Taiwan16.8006063836Brazil-15.419715922748Bulgaria53.9Costa Rica63.90.0%0.0%

    Tunisia0.2871393710.451332609Tunisia18899.810109413219977.410161951854.268795868490.1645664946Tunisia66.1444022331Australia-18.016240296749Peru48.7Peru57.30.0%0.0%

    Turkey0.4916828440.72Turkey189164.559823283145243.602351803930.08968757921045.753936933Turkey12.4358167711Romania-21.781980853450Costa Rica37.2Uruguay44.40.0%0.0%

    Uganda0.05540.0731Uganda6269.2325867125640.8758295993.4731548534.1234802314Uganda18.7243415833Slovak Republic-28.339998243351Estonia26.5Estonia40.90.0%0.0%

    Ukraine1.1922971130.946147499Ukraine50150.399813132838009.3445766088597.9417691299359.6244630979Ukraine-39.856273359Madagascar-29.943495290552Bolivia25.4Latvia31.40.0%0.0%

    United Kingdom1.8197914081.901976245United Kingdom1327798.067727141429665.1143373324163.155152088527191.8908577481United Kingdom12.5345207883Ukraine-39.85627335953Latvia23.9Bolivia27.40.0%0.0%

    United States2.5764585482.804696473United States825650010019700212725.30001562281022.172505181United States32.1056651393Moldova-40.9002601554Moldova15.6Moldova9.20.0%0.0%

    Uruguay0.3864578150.237773114Uruguay21704.078247791718666.382112905583.877106562344.383638021Uruguay-47.0849200216Uruguay-47.084920021655Madagascar8.7Madagascar6.10.0%0.0%

    Venezuela, RB0.3301160480.442264518Venezuela, RB88703.6155328699126197.436437683292.8248700302558.1264839895Venezuela, RB90.600779207Colombia-53.681941833856Uganda3.5Uganda4.10.0%0.0%

    Total567,428.4Total656,756.1100.0%100.0%

    Growth rates

    Value of R&DGrowth rateR&D growth rate (current $)

    Rank199720011997-2001Country1997-2001

    1Argentina1,228.8Argentina1,141.1-1.8%ArgentinaChina20.1%

    2Australia6,881.9Australia5,642.0-4.8%AustraliaMalaysia18.3%

    3Austria3,516.2Austria3,626.80.8%AustriaVenezuela17.5%

    4Belgium4,591.6Belgium4,937.71.8%BelgiumMexico15.2%

    5Bolivia25.4Bolivia27.42.0%BoliviaIceland14.8%

    6Brazil6,258.6Brazil5,293.5-4.1%BrazilCosta Rica14.5%

    7Bulgaria53.9Bulgaria63.94.4%BulgariaIsrael14.0%

    8Canada10,631.1Canada13,447.96.1%CanadaTunisia13.5%

    9Chile407.5Chile360.3-3.0%ChileIndia11.5%

    10China6,142.0China12,776.220.1%ChinaEstonia11.4%

    11Colombia292.0Colombia135.3-17.5%ColombiaHungary10.3%

    12Costa Rica37.2Costa Rica63.914.5%Costa RicaPortugal8.4%

    13Czech Rep.658.6Czech Rep.751.03.3%Czech Rep.USA7.2%

    14Denmark3,278.5Denmark3,821.63.9%DenmarkLatvia7.1%

    15Egypt155.5Egypt191.65.4%EgyptCanada6.1%

    16Estonia26.5Estonia40.911.4%EstoniaSingapore5.8%

    17Finland3,333.6Finland4,155.75.7%FinlandFinland5.7%

    18France31,193.3France29,072.7-1.7%FranceEgypt5.4%

    19Germany48,261.8Germany46,302.7-1.0%GermanySlovenia5.3%

    20Hungary330.6Hungary489.910.3%HungaryLithuania5.1%

    21Iceland133.0Iceland230.914.8%IcelandSpain5.0%

    22India2,417.1India3,732.511.5%IndiaBulgaria4.4%

    23Ireland1,031.0Ireland1,188.03.6%IrelandPeru4.2%

    24Israel3,309.2Israel5,593.814.0%IsraelTaiwan4.0%

    25Italy12,266.0Italy12,119.5-0.3%ItalyDenmark3.9%

    26Japan122,553.0Japan128,950.01.3%JapanPoland3.9%

    27Korea12,809.7Korea12,629.1-0.4%KoreaIreland3.6%

    28Latvia23.9Latvia31.47.1%LatviaCzech Rep.3.3%

    29Lithuania66.3Lithuania80.75.1%LithuaniaUK3.0%

    30Madagascar8.7Madagascar6.1-8.5%MadagascarTurkey3.0%

    31Malaysia220.4Malaysia431.118.3%MalaysiaBolivia2.0%

    32Mexico1,382.1Mexico2,433.215.2%MexicoBelgium1.8%

    33Moldova15.6Moldova9.2-12.3%MoldovaNorway1.6%

    34Netherlands7,694.9Netherlands7,258.4-1.4%NetherlandsJapan1.3%

    35Norway2,606.7Norway2,778.01.6%NorwaySweden0.8%

    36Peru48.7Peru57.34.2%PeruAustria0.8%

    37Poland1,059.2Poland1,234.73.9%PolandItaly-0.3%

    38Portugal659.6Portugal910.08.4%PortugalKorea-0.4%

    39Romania204.4Romania159.9-6.0%RomaniaUganda-0.6%

    40Russia3,994.3Russia3,608.0-2.5%RussiaGermany-1.0%

    41Singapore1,429.2Singapore1,787.85.8%SingaporeNetherlands-1.4%

    42Slovak Rep.175.7Slovak Rep.125.9-8.0%Slovak Rep.France-1.7%

    43Slovenia258.8Slovenia318.15.3%SloveniaSwitzerland-1.8%

    44South Africa1,011.9South Africa879.1-3.5%South AfricaArgentina-1.8%

    45Spain4,598.7Spain5,584.85.0%SpainRussia-2.5%

    46Sweden9,084.2Sweden9,370.10.8%SwedenChile-3.0%

    47Switzerland6,987.7Switzerland6,489.6-1.8%SwitzerlandSouth Africa-3.5%

    48Taiwan5,223.1Taiwan6,100.64.0%TaiwanBrazil-4.1%

    49Tunisia54.3Tunisia90.213.5%TunisiaAustralia-4.8%

    50Turkey930.1Turkey1,045.83.0%TurkeyRomania-6.0%

    51Uganda43.3Uganda42.3-0.6%UgandaSlovak Rep.-8.0%

    52UK24,163.2UK27,191.93.0%UKMadagascar-8.5%

    53Ukraine597.9Ukraine359.6-11.9%UkraineUkraine-11.9%

    54Uruguay83.9Uruguay44.4-14.7%UruguayMoldova-12.3%

    55USA212,725.3USA281,022.27.2%USAUruguay-14.7%

    56Venezuela292.8Venezuela558.117.5%VenezuelaColombia-17.5%

    Total567,468.2Total656,794.33.7%TotalTotal3.7%

    Top Developing & transition

    19972001Growth% of Total

    China6,14212,77620.1%China12.8122.39

    Korea12,81012,629-0.4%Korea26.7322.13

    Taiwan5,2236,1014.0%Taiwan10.9010.69

    Brazil6,2595,294-4.1%Brazil13.069.28

    Russia3,9943,608-2.5%Russia8.336.32

    India2,4173,73211.5%India5.046.54

    Mexico1,382.12,433.215.2%Top 6 Share76.8877.35

    Singapore1,429.21,787.85.8%

    Poland1,059.21,234.73.9%

    Argentina1,228.81,141.1-1.8%

    Turkey930.11,045.83.0%

    S Africa1,011.9879.1-3.5%

    total above43,88652,662

    Developing/transition45,93155,099

    % above 695.5%95.6%

    19972001

    Singapore1,429.2Mexico2,433.2

    Mexico1,382.1Singapore1,787.8

    Argentina1,228.8Poland1,234.7

    Poland1,059.2Argentina1,141.1

    South Africa1,011.9Turkey1,045.8

    South Africa879.1

    % share of total developing/transition

    19972001

    China13.4%23.2%

    Korea27.9%22.9%

    Taiwan11.4%11.1%

    Brazil13.6%9.6%

    Russia8.7%6.5%

    India5.3%6.8%

    Mexico3.0%4.4%

    Singapore3.1%3.2%

    Poland2.3%2.2%

    Argentina2.7%2.1%

    Turkey2.0%1.9%

    S Africa2.2%1.6%

    Top 575.0%73.3%

    Top 1091.3%92.1%

    Top Developing & transition

    1997

    2001

    Figure YYY: R&D expenditures in top 12 developing and transition economies (current US$ million)

    Firm level, US

    12.81499536322.3900848349

    26.726892076122.1322279135

    10.897792974310.6912081542

    13.058335429.2768405851

    8.33400419166.3228990333

    5.04314511066.5411213022

    1997

    2001

    % of Total

    R&D Expenditures, Share of Developing Sample Total

    Regions

    1997

    2001

    Figure YYY: R&D by top 12 developing and transition economies as % of total R&D by these economies

    >25,000 employees>5,000 employees

    TotalManufacturingTotalManufacturing

    % Numbers0.350.41.61.96

    % R&D39.348.761.970.7

    % Numbers

    % R&D

    Share of leading R&D performing US firms in number of firms and R&D

    19972001

    1United States212,725.340.8%2South Africa1011.93629634973Korea12809.66920770974Brazil6258.60113693335Russian Federation3994.32289271396Turkey930.08968757927India2417.0794138541United States281022.1725051812South Africa879.13923519553China12776.21052888214Brazil5293.54262088445Russian Federation3607.96708894626Turkey1045.7539369337India3732.4888881667

    1Japan122,553.023.5%2Madagascar8.69156623223China6141.97307459394Mexico1382.11966506325Poland1059.22263526246Egypt, Arab Rep.155.49987628891Japan128949.9955131292Madagascar6.08900750683Korea12629.07243904914Mexico2433.18062904215Poland1234.69827181466Egypt, Arab Rep.191.5668425411

    1Germany48,261.89.3%2Uganda3.4731548533Taiwan5223.0964Argentina1228.79528832025Czech Republic658.63496539946Tunisia54.26879586841Germany46302.7234710672Uganda4.12348023143Taiwan6100.60784Argentina1141.14084002475Czech Republic750.98590991186Tunisia90.1645664946

    1France31,193.36.0%3Singapore1429.24508641764Chile407.47584898955Ukraine597.94176912991France29072.72140019563Singapore1787.84620118674Venezuela, RB558.12648398955Hungary489.8949385144

    1United Kingdom24,163.24.6%3Malaysia220.37146519344Venezuela292.82487003025Hungary330.59448861171United Kingdom27191.89085774813Malaysia431.08266330414Chile360.34711316695Ukraine359.6244630979

    1Italy12,266.02.4%4Colombia292.03859095465Slovenia258.80659808321Canada13447.86914003864Colombia135.2666044265Slovenia318.0749689432

    1Canada10,631.12.0%4Uruguay83.87710656235Romania204.38051781771Italy12119.46851482324Costa Rica63.88937437585Romania159.8623925587

    1Sweden9,084.21.7%4Peru48.66048077915Slovak Republic175.66461400241Sweden9370.05665815354Peru57.32108512355Slovak Republic125.88126548

    1Netherlands7,694.91.5%4Costa Rica37.20403066055Lithuania66.26211160771Netherlands7258.41451083214Uruguay44.3836380215Lithuania80.7466

    1Switzerland6,987.71.3%199720014Bolivia25.3623481585Bulgaria53.87124546261Switzerland6489.59560829224Bolivia27.42957766295Bulgaria63.895013396

    1Australia6,881.91.3%Industrialised91.9%91.6%5Estonia26.52154102791Australia5642.02345555775Estonia40.8850534928

    1Spain4,598.70.9%Developing6.8%7.3%5Latvia23.86840375491Israel5593.81231231985Latvia31.4198146497

    1Belgium4,591.60.9%Transition1.3%1.1%5Moldova15.57158932781Spain5584.82452025825Moldova9.2027687832

    1Austria3,516.20.7%1Belgium4937.691490009

    1Finland3,333.60.6%1Finland4155.6674384185

    1Israel3,309.20.6%1Denmark3821.605614829

    1Denmark3,278.50.6%1Austria3626.844106374

    1Norway2,606.70.5%1Norway2777.9944469759

    1Ireland1,031.00.2%1Ireland1187.9587328683

    1Portugal659.60.1%1Portugal909.9830927565

    1Iceland133.00.0%1Iceland230.8677888151

    Total above521,497.41024.101017434925824.354833914510056.95936645117465.66337220161139.85835973652417.079413854Total above601,695.2889.351722933833724.81963242210114.62796671687273.13854958841327.48534596873732.4888881667

    Total567,428.4567428.435971179567428.435971179567428.435971179567428.435971179567428.435971179567428.435971179Total656,794.3656756.093284439656756.093284439656756.093284439656756.093284439656756.093284439656756.093284439

    Developing/transition45,931.0Developing/transition55,099.1

    % of Total0.91905408070.00180481090.04551121020.01772374930.01315701310.00200881430.00425970790.91610905090.00135415830.05135060030.01540088940.01107433740.0020212760.0056832193

    Developed Nations0.9190540807Developed Nations0.9161623125

    Sub-Saharan Africa0.0018048109Sub-Saharan Africa0.0013541583

    Eastern Europe and Central Asia0.0131570131Eastern Europe and Central Asia0.0110743374

    Middle East and North Africa0.0020088143Middle East and North Africa0.002021276

    South Asia0.0042597079South Asia0.0056832193

    East Asia0.0455112102East Asia0.0513506003

    Latin America and the Caribbean0.0177237493Latin America and the Caribbean0.0154008894

    1024.101017434925824.354833914510056.95936645117465.66337220161139.85835973652417.079413854889.351722933833724.81963242210114.62796671687273.13854958841327.48534596873732.4888881667

    Total Developing R&D47928.016363592647928.016363592647928.016363592647928.016363592647928.016363592647928.016363592647928.0163635926Total Developing R&D57061.912105796357061.912105796357061.912105796357061.912105796357061.912105796357061.912105796357061.9121057963

    2.136748180253.881543183420.983466726815.57682528642.37827151265.0431451106

    1.558573293759.102154813717.725708083512.74604772462.32639478246.5411213022

    19972001Sub-Saharan Africa1.5585732937

    Transition15.612.7Eastern Europe and Central Asia12.7460477246

    East Asia53.959.1Middle East and North Africa2.3263947824

    S Asia5.06.5South Asia6.5411213022

    LAC21.017.7East Asia59.1021548137

    MENA2.42.3Latin America and the Caribbean17.7257080835

    SSA2.11.6

    0

    0

    0

    0

    0

    0

    0

    Developed Nations

    Latin America and the Caribbean

    East Asia

    MENA

    Sub-Saharan Africa

    South Asia

    Eastern Europe and Central Asia

    Regional Shares of R&D Expenditure (2001)

    Latin America and the Caribbean

    Industrialised countries

    East Asia

    South Asia

    MENA

    Eastern Europe and Central Asia

    Sub-Saharan Africa

    Regional Shares of R&D Expenditure (1997)

    1997

    2001

    Distribution of R&D expenditures in developing and transition economies (%)

    Transition

    East Asia

    S Asia

    LAC

    MENA

    SSA

    Figure ZZZ: Regional shares of RD by developing & transition economies

  • Role of MNCs in global economy is growing steadilyFDI is growing faster than other economic aggregates: national investment, GDP or exports MNCs control about 2/3 of world trade. About 30-40% of this trade is within MNCs, and their role is particularly large in high-tech manufacturingMNC export activity is taking new forms: global production networks, with very fine vertical specialization by function/component between countries Local companies are also involved in global production networks, but only if they have very high levels of technological capabilities and form strong ties with MNCs to access and absorb their technological know-how and management skills

  • MNCs are globalizing innovation: Share of foreign affiliates in national R&D, 2001

  • Triad MNCs spend large sums in R&D in each others economies

  • US MNC R&D in developing & transition economies (current $ million)

  • What this means for developing & transition economies FDI is the most efficient way to access foreign technology if countries want ...New, fast-changing proprietary technologies not available at arms lengthRapid access to new technology and subsequent upgrading, without local effortNon-core components of operation (i.e. management, marketing, finance etc)Access to MNC foreign markets, particularly to global production networks

  • For local firms Licensing or joint ventures are desirable if: Local firms are strong in base technologies but need particular new components of technology They specialize in activities with stable technologies, where state-of-art technologies are available at arms lengthThey can export through foreign buyers (low technology products), sell undifferentiated products directly or have established brandsThey subcontract to MNCs (OEM) or supply local components

  • Attracting FDI, particularly export-oriented production networks

  • FDI location: Traditional factors...Some remain relevantStable, transparent and welcoming policiesGood macroeconomic managementLarge and/or fast growing marketsPrimary resources Cheap and trainable labour But others are becoming less important Cheap unskilled labourProtected markets

  • New factors in FDI location...Human capital: new skills, flexible practices, training provisions, ease of expatriate entryTechnology systems: MSTQ & R&D strongly linked to and supportive of enterprisesStrong supplier and service networkModern ICT infrastructure and logisticsLow transaction costs (entry, exit, expansion, taxation, customs, employment)Strong legal systems and property rights Openness to cross-border mergers & acquisitionsEffective FDI promotion, targeting and coordination with supply side policies

  • Rooting MNCs locallyAttracting FDI is not enough: globalized production is (by definition) mobileRetaining MNCs, esp. in export-oriented activities, needs Constantly rising skill levelsTighter links to more efficient suppliersGreater depth of technological activity, in-house and with local knowledge institutions

  • How to promote supplier linkages with MNCs?Local content rules often inefficient and now forbidden by WTO rulesFiscal incentives are costly but can only play an initial stimulating roleWhat works best:Improving supplier capabilities, directly and with MNC assistanceMatchmaking, information disseminationCluster development strategies

  • For example, in MalaysiaThe Small and Medium Industries Corporation has a Global Supplier Programme to strengthen SMEs not only to become suppliers to MNCs, but also to become global suppliers. This programme provides training in critical skills and incentives to MNCs to adopt local suppliers and to help them upgrade skills and technology. Eng Teknologi Holdings Berhad (ENGTEK) has benefited from both programmes. Starting as a supplier of components to the local hard disk drive and semiconductor MNCs, it is now a multinational, with nine companies in four other East Asian countries. ENGTEK has entered into partnerships with several electronics MNCs operating in Penang, which provide it with technical and financial assistance, helping it develop design as well as manufacturing expertise and providing it entry into their global value chains. MNCs also actively create linkages. Intel Malaysia uses its SMART programme for local supplier development. SMART has five steps: select promising suppliers on the basis of systematic analysis; provide initial training; allocate business according to capabilities; raise capabilities by technical assistance and training; and help suppliers diversify and develop into global suppliers. Government tax incentives and financial support (worth about $50m a year) have helped this initiative.

  • Ireland is best practice in using FDI to develop hi-tech industryTargeted inward investment strategy: The Industrial Development Authority (IDA) launched industry and company targeting strategy. Sector/industry specialists were used to develop industry-based strategy and meet potential investors. US electronics and pharmaceutical industries targeted in the 1970s, software and international services in the 1980s/1990s; IT, multi-media and e-business in the 2000s. Objective shifted from job creation to promotion of linkages with local firms and attraction of headquarters and R&D National Linkage Programme fosters links between investors and local firms. It covers market research, matchmaking, monitoring and troubleshooting, business development by arm of IDA set up specifically to promote indigenous firms.Aftercare and plant upgrading, concentrated on about 50 key companies in five target industries. IDA targets companies that have a high potential for new investment, or that can leverage investment from other companies. Links are forged with the management to improve plant competitiveness by making sure that the local management is fully informed of Irelands advantages. Skills development, which involved the expansion of education so that over 40%of school leavers go on to third-level education (set to rise to 50%). IT and science subjects have been prioritized as part of a proactive strategy anticipating future needs. Computer provision and training in schools have increased dramatically; IDA officers visited every school and written to every parent. Technology policy, including 2000 Technology Foresight Fund with a $1bn plan to boost R&D in information technology and biotechnology. Telecommunications deregulation and a $65bn National Development Plan, with a focus on e-business and infrastructure, also support technology activities.Low corporate tax has been a central to Irelands attractiveness for FDI . Corporate tax is currently set at 10% and many exemptions are available.

  • Creating a technology culture in industry (difficult but necessary)Raise awareness of need for in-house technological activity and R&DTechnology foresight exercisesBenchmarking and technology audits R&D incentives: most countries make R&D tax-deductible expense, many offer extra incentives. Effects mixed, but tax credits linked to incremental R&D seem best

  • Strengthening the technology infrastructure Metrology, standards, testing, qualityQuality standards vital (e.g. ISO 9000)Good standards institutions can help to diffuse technology and quality awarenessAdvanced standards institutions are withdrawing from testing into basic standard setting and research. They are helping create private service providers.

  • Metrology (measurement/calibration) is central to quality certification; international accreditation is vital to competitiveness Local metrology capability reduces cost and raises response speedSecondary metrology can be carried out by private laboratories, primary metrology has to be done in public institutions Role for government in providing the public goods and creating private markets

  • Research & development institutionsMost public R&D/universities are delinked from enterprises: different culture, no incentives and wrong skillsBut they are an important resource for accessing, adapting, diffusing, creating technology and for rooting MNCs Valuable for hi-tech start-ups and SMEsVital source of creating R&D skills for industry and breaking ground in generic new technologies

  • How can knowledge institutions be made more relevant? Privatization of public laboratories Hard budgets, management change Intensive training of staff and incentives to reach out to industry Funded schemes for joint R&D with industry, exchange of R&D personnel Matchmakers to create links with firms, raise their awareness of capabilities and potential

  • Conclusions Technology absorption needs stable and conducive policy framework Technology access is increasingly linked to FDI but attracting, rooting and extracting benefits from FDI needs dynamic local firms & institutions Building local capabilities is basic to effective technology absorption: and this needs strong policy support