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Globalization and Technology Absorption in Eastern Europe and the Former Soviet Union
Pradeep MitraChief Economist
Europe and Central Asia RegionWorld Bank
Presentation at the plenary session of the conference on “Economic Modernization and Globalization” at the State University Higher School of Economics Moscow, April 1, 2008
Technological progress is at the heart of income growth and poverty reduction
Source: World Bank, Poncet 2006
* Data for Europe & Central Asia cover period 2005/1995
Average annual per capita income and total factor productivity growth,1990-2005
0
1
2
3
4
5
6
7
8
East Asia &Pacific
Europe &Central Asia*
Latin America& Caribbean
Middle-East &North Africa
South Asia Sub-SaharanAfrica
Per capita income growth
TFP growth
Technology gap: narrowing but still wide
0
20
40
60
80
100
120
High Income Upper MiddleIncome
Lower MiddleIncome
Low Income
Index of technological achievement
1990s
2000s
Source: World Bank, Global Economic Prospects (2008)
Diffusion across countries has accelerated but penetration within countries remains weak
0
1020
3040
5060
7080
90
1800s 1900-50 1950-75 1975-00
Years for technology to reach country
Percent of countries to reach 25% penetration threshold
Year technology invented
Source: World Bank using CHAT database (Comin & Hobijn, 2004)
Years to diffuse, % countries at 25% threshold
Technological progress in developing and transition countries is mainly about absorbing and adopting technologies developed elsewhere. Trade, FDI and international co-invention are channels for innovation and knowledge absorption.
Source: Globalization and Knowledge Absorption in ECA (World Bank, 2008), Global Economic Prospects (World Bank, 2008)
Exposure to foreign
technology
Capacity to absorb
=
+
Technological progress
Foreign Direct Investment Helped EU New Member States Participate in Producer-driven Global Commodity Chains and Export Skilled Labor and Capital-Intensive Products.
Turkey
Thailand
Philippines
MalaysiaMexico
Korea, Rep of
Indonesia
China
Chile
Brazil
Argentina
Ukraine
Slovenia
Slovak Rep
Russia
Romania
Poland
Moldova
Macedonia
LithuaniaLatvia
Kyrgyz Republic
Kazakhstan
Hungary
Georgia
Estonia
Czech RepublicCroatia
Bulgaria
Bosnia and Herzegovina
Belarus
Azerbaijan
Armenia
Albania
4
4.5
5
5.5
6
6.5
7
7.5
8
8.5
9
0 10 20 30 40 50 60 70 80 90share of skilled-labor and capital intensive products in total exports
FD
I st
ock
per
cap
ita,
U.S
. d
oll
ars
(lo
gar
ith
m)
Source: UN COMTRADE and IMF International Financial Statistics Database.
The structure of finance for fixed investment reflects greater reliance on retained earnings and banks at the expense of family/informal and other sources – a maturation of the business and financial sectors in the transition economies.
Source: Mitra, Muravyev, and Schaffer 2008, “Convergence in Institutions and Market Outcomes: Cross-country and Time-series Evidence from the BEEPS Surveys in Transition Countries.” World Bank, Washington, D.C.
The Structure of Finance for Fixed Investment Is Maturing but Has Not Converged to That in Developed Economies
0%
20%
40%
60%
80%
100%
WestGermany
Cohesion EU8 SoutheasternEurope
Middle income CIS Low incomeCIS
retained earnings banks family/informal other
Scores in science and mathematics in PISA 2006 were comparable to the OECD average in the countries that acceded to the European Union in 2004 and lower elsewhere.
0
100
200
300
400
500
600
Mean score in mathematical literacy, 2006 Mean score in science, 2006
OECD average in mathematical literacy
OECD average in science
Source: OECD PISA 2006
Inventions in the ECA 7 countries received more U.S. patent grants than did investors in China and India until the most recent years. However, there is a clear acceleration in India and China-based patenting in recent years.
0
200
400
600
800
1000
1200
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
ECA 7
India
China
Source: Authors’ calculations based on the U.S. Patent and Trademark Office CASSIS CD-ROM, December 2006 version. The graph compares counts of patents in which at least one inventor is based in one of seven ECA countries, India, or the People’s Republic of China. The ECA 7 are Russia, Hungary, Poland, Slovenia, the Czech Republic, Bulgaria, and the Ukraine.
U.S. Patent Grants for the ECA7 vs. China and India
International co-invention (ECA 7 patent grants generated by international teams of inventors) has expanded greatly compared to purely indigenous patents (ECA 7 patent grants generated by inventors based within a single country).
0
100
200
300
400
500
600
700
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Total Patents Purely Indigenous Patents
Indigenous Patents and Co-Inventions in the ECA 7, 1993-2006
Source: Authors’ calculations based on the U.S. Patent and Trademark Office CASSIS CD-ROM, December 2006 version. The ECA 7 are Russia, Hungary, Poland, Slovenia, the Czech Republic, Bulgaria, and the Ukraine.
Conclusions Trade, foreign direct investment and international co-invention
are channels for innovation and knowledge absorption in the global economy;
The effectiveness of those channels depends on a country’s business environment, viz., the state of competition, financial depth, governance, skills and infrastructure;
The EU new member states are deeply integrated into FDI-enabled network trade;
The structure of finance is maturing in Eastern Europe and the former Soviet Union. Countries which joined the EU in 2004 scored near the OECD average in the 2006 PISA in science and mathematics but other transition countries are doing less well;
Patents granted through international co-inventions have become increasingly important compared to purely indigenous patents and are more connected to global R&D trends.