Knowledge and Innovation in Central and Eastern Europe Trends and Issues Jean-Eric Aubert World Bank Institute May 2004

Knowledge and Innovation in Central and Eastern EuropeTrends and Issues

Jean-Eric Aubert World Bank Institute

May 2004

Structure of the presentation Knowledge Economy: What is it?

How to benchmark countries? Where do stand the new EU countries?

Innovation policy trends and issues in Central/Eastern Europe

Data sources: World Bank, OECD, EC

Knowledge Economy and Development Strategies

Knowledge and innovation at the core of development strategies

Are not just about ICT or high technology,but about broader economic strategies

Have to be tailored to specific realities of each country

Require coordination across functional areas and among government, business and civil society

Investments in knowledge are growing across OECD. . .

8.8 1.8 3.4 10.8 6.7 4.2 4.6 3.4 6.0 4.3 4.5 7.6 8.8 6.1 9.7n.a.n.a.n.a.

0

2

4

6

8

Gre

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(199

9)

Pol

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(19

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EU

Fra

nce

Japa

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OE

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(19

99)

Den

mar

k (1

999)

Fin

land

Uni

ted

Sta

tes

Sw

eden

%R&D Software Higher Education

Average annual growth rate 1992-2000

. . . as are knowledge-intensive industrial outputs

0

5

10

15

20

25

Gre

ece

Net

herla

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Den

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Pol

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(199

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.(19

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Uni

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EU

OE

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epub

lic

Sw

eden

Fin

land

Ger

man

y

Hun

gary

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(199

9)

% Of which: high technology manufactures

Share of high- and medium-high technology manufacturing in total gross value added (2002)

Share of knowledge-intensive “market” services in total gross value added (2000)

0

5

10

15

20

25

Slo

vak

Rep

. (1

999)

Fin

land

Gre

ece

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Cze

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EU

OE

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% Post and telecommunications Finance and insurance Business services

Framework for KE:

Four Key Functional Areas (WBI)

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©Knowledge for Development, WBI

WBI/KAM Methodology

KAM: 76 structural/qualitative variables to benchmark performance on 4 pillars

Variables normalized from 0 (worst) to 10 (best) for 121 countries

www1.worldbank.org/gdln/kam.htm Basic scorecard for 14 variables at two

points in time, 1995 and 2002 Aggregate knowledge economy index

(KEI)


KEI variables – Country comparison

Strong Correlation between GDP/Capita & KEI


KE and GDP Strong correlation between KE and

GDP per capita; how to interpret it? Some countries, notably Eastern

Europe (transition economies) ones, have a “lower” KE productivity (according to indexes used)

Benchmarking Selected Countries : KEI


Benchmarking Selected Countries: EIR


©Knowledge for Development, WBI


ICT



Education

EU accession countries Main Issues in KE perspective Business climate, altered by problematic rule

of law (enforcement), but push for improvement through search for accession and adoption of acquis communautaire

Overestimation of ST potential, falling ST resources but improved productivity, resistances to reforms

Highly educated workforce but excessively technical and narrow qualifications

Improvement in ICT infrastructure but use still lagging behind OECD countries

Important differences in adaptive capabilities of EU accession countries

Size effects (e.g Poland) Cultural aspects (Estonia/Hungary

vs others, historical experience with rule of law)

Moves to EU (Bulgaria, Romania trailing behind)

Competitiveness trends (WEF)

Country GCI 2003 GCI 2004

Finland 1 1

Germany 13 14

Estonia 22 27

Hungary 33 29

Poland 45 50

Bulgaria 64 58

European Innovation Scoreboard 2002- Candidate Countries

European Innovation Scoreboard 2002 - Candidate CountriesEU Mean CC Mean

S&E Graduates/20-29 years 10.26 6.60Population with Tertiary Education 21.22 17.50Participation in Life-long Learning 8.50 5.40Employment in med/hi-tech manuf. 7.57 5.40Employment in hi-tech services 3.61 2.60Public R&D/GDP 0.67 0.41Business R&D/GDP 1.28 0.32EPO Patents/Population 152.70 7.10USPTO hi-tech Patents/Population 12.40 0.50Home Internet Access/Population 31.40 14.80ICT expenditures/GDP 8.00 6.00Inward FDI/GDP 30.30 31.30Source: European Innovation Scoreboard 2002


Innovation Systems in Transition (From Planning to Market Economies)

Yesterday: Top down (Science Academies, branch institutes, design bureaus, enterprises), compartmentalized, regionally specialized, “closed”, and oversized

Today: more market-economy like, yet insufficiently (poorly) regulated, more regionally diversified, internationalized, and R&D seriously downsized (by one half to two thirds).

The Soviet Innovation System

Enterprises

Branch Institutes

Sc Ac. Institutes

Design Bureaus

R&D investments OECD countries – GERD as per cent of GDP

GERD as % of GDP

Source: OECD MSTI Database, November 2003

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Sw

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Gre

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Rom

ania

2002 1995

Business R&D

Business R&D as a % of GDP

Note: Data for 2002 or nearest year available.Source: OECD, MSTI database, November 2003.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2002 1995

Funding for public research lags in Eastern European countries

R&D in the higher education and government sectors as a % of GDP, 2000

Source: OECD, MSTI Database, November 2003.

0.0

0.2

0.4

0.6

0.8

1.0

1.2

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Government Higher education 1995

Small firms play in important role & attract much government support

0

10

20

30

40

50

60

70

80

90

100

0 10 20 30 40 50 60 70 80 90 100

SME share of total business R&D (%)

SM

E s

hare

of g

over

nmen

t-fin

ance

d bu

sine

ss R

&D

(%)

Norway

Switzerland Australia Poland

Hungary

Netherlands

DenmarkTurkey

Finland

PortugalSpain

Belgium

Czech Rep.

ItalyKorea

Canada

Mexico

OECDGermany UK

EUSweden

US France

R&D becoming more globalised: opportunity for emerging economies?

Foreign affiliates as share of industrial activity R&D intensity of domestic versus foreign firms

Source: OECD Activities of Foreign Affiliates database, January 2004

Czech Republic

Hungary

Sw eden

United Kingdom

Netherlands

Canada

Turkey

Ireland

Japan

Spain

Finland

Germany

France

United States

Poland

Portugal

0

10

20

30

40

50

60

70

80

0 10 20 30 40 50 60 70 80

R&D expenditure (%)

Turnover (%)

Canada

United States

Japan

Australia

Czech Republic

Finland

France

Germany

Greece

Hungary

Ireland

Netherlands

Poland

Portugal

Slovak Republic

Spain

Turkey

United Kingdom

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0Firms controlled by the compiling countries (%)

Affiliates under foreign control (%)

Sweden(3.9 , 2.0)

Strengthening human resources for S&T

Researchers per thousand labour force, 2002

Attract and retain foreign students and workers

Cultivate domestic supply of scientists and engineers

0

3

6

9

12

15

18

Turk

ey Italy

Czec

h Re

publ

ic

Pola

nd

Slov

ak R

epub

lic

Hung

ary

Aust

ria

Irela

nd

Neth

erla

nds

Euro

pean

Uni

on

Tota

l OEC

D

Fran

ce

Ger

man

y

Denm

ark

Unite

d St

ates Japa

n

Swed

en

Finl

and

Researchers

0

3

6

9

12

15

18

Graduates

1990 2002 Science graduates per million youth labour force (2001)

Challenges of EU Accession and key role of innovation

Benefits of Accession will only be reaped where there is effective absorption capacity of funds at both administration and enterprise level, and where Accession is accompanied by growth-promoting policies (e.g. Ireland) key role of innovation.

Impressive economic transformation of CEE Countries evidence of capacity to embrace change…

However, analysis suggests large disparities between innovation performances of Accession Countries and EU-15.

How to improve the innovation policy framework? Make regulatory framework more

“innovation/entrepreneurship-friendly”; towards audits to identify obstacles to innovation

Recognize the full scope of innovation policy (innovation not just science and technology) and make innovation a policy priority and an integral part of other policy areas (competition, education)

Foster co-ordination between ministry lines with a remit for innovation matters;

More government support for R&D and ST human resources;

Foster public/private partnerships Overcome gaps between policy declarations and

concrete implementation.

Implementation IssuesBeyond benchmarking and policy recommendations

Positioning of KE and Innovation Policy within development strategies; cutting across policies with unclear status

We need to know not much ‘what to do’ but ‘how to do’? Problem of political economy of change.

Adaptation of “best practices” to local contexts? Need to understand much better the influence of local cultures

Measuring impact on industries, countries’ performances – going beyond the “slogan”

Thank you!

[email protected]://www.worldbank.org/

wbi/knowledgefordevelopment/

Annex -- Knowledge Economy work at the World Bank World Development Report 1998/99: “Using

Knowledge for Development” WBI K4D program: Development Strategies

with Knowledge and Innovation-related Policies at the core Country studies (Korea, China, and a few others

in the pipeline), lighter country assessments Policy fora (China, India, Brazil, Baltics and

Poland, ASEAN countries) and conferences with WB Regions

Focused work on selected aspects (notably innovation)

Annex -- KE work within the World Bank

Regional Conferences with WBI support (ECA, MENA, AFR forthcoming)

Studies in selected countries (e. g. Turkey, Lithuania, Tunisia)

Follow on to WBI work within WB Regions (KE unit in Europe and Central Asia), interested in (lending) projects – KE projects beginning in Turkey and Romania

Use of GDLN (video conference network)

Documents

Knowledge and Innovation in Central and Eastern Europe Trends and Issues Jean-Eric Aubert World Bank Institute May 2004