Transcript Slide 1

Industrial upgrading in Western Balkans
and policy implications
Prof. Slavo Radosevic
Keynote remarks
The Impact of Economic Crisis in Western Balkans: Implications for Politics,
Innovation and Change
EBRD, Roundtable discussion, Friday 12th February 2010
Outline
• Western Balkans: a brief recap of recent and
not so recent history
• Industrial upgrading: production and
innovation capability and foreign levers to
growth
• Policy lessons
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Western Balkans: a brief recap of recent and past
history
• After 1989: the SEE/WB has become a new European periphery
• Lesson from history: the growth of periphery is inextricably linked to its
international economic integration (Berend and Ranki, 1982).
• Catch up with the EU core = f (the relative roles of exogenous and
endogenous forces * the nature of their interaction)
• The direct economic ‘pull’ of the old EU through finance, FDI and
intra-industry trade > < the domestic forces (national system of
political economy) which enable the external influences to have spin
off effects
• My lenses today: industrial upgrading
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Industrial upgrading: how to move up along
value chain?
• Cost vs. quality vs. technology based competition
• Requirements for technology based competition
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competition based on product/process innovation
sophisticated demand
user requirements
certificates and standards
marketing barriers (brand)
after sale services and warranty
IPRs
affordable access of NTBFs to technical infrastructure
available finance to upscale production
• For the time being, upgrading in WeBa is about production
not innovation capability
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Direct and indirect R&D content: policy
implications
• A majority of the NMS and all WeBa are technology users and
have a high indirect technology intensity
Non-EIS pattern of technology upgrading:
-> low overall technology intensity -> high indirect
technology intensity -> average direct and indirect technology
intensity -> high direct technology intensity
Policy implication: integrate FDI / technology transfer into
innovation policy
(increase R&D but in interaction with imported and indirect domestic
R&D (embodied in capital goods and inputs)
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Production capability as driver of
productivity; the inefficiency of NIS in EE
• Production capability and R&D as drivers of productivity (see next two
slides)
• Given their levels of R&D, innovation and quality related activities
(ISO9000), EBRD economies have lower levels of GNI per capita
compared to the ROW.
• The models that include sub-regional dummies (11 and 12) show
improved explanatory power confirming that inefficiency of the NSI
characterizes all EBRD sub-regions
• EBRD countries sample: ISO certification as a proxy for production
capability significantly contributes to explaining the differences in
productivity. In a catching up context, R&D denotes absorptive rather
than innovative capability
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A shift from production to innovation capability is
not automatic and linear process
• Not significant correlation between firm level technology absorption
and company spending on RD across countries* + not significant
link between firm level technology absorption and capacity for
innovation > significant difference between innovation capacity
and production capability/absorptive capacity.
• Innovation variables (capacity for innovation and company
spending on RTD ) are strongly and significantly correlated to
external RTD factors (local specialised research and training,
quality of scientific research institutes and to demand) and to
demand factors (customer orientation, buyer sophistication).
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*For very similar result see EBRD TR 2009, p. 102: there is not link between
management practises and either % of innovative sales or R&D spending (cf.
not, this is not measurement error)
Source: Radosevic, S (2009) ‘Research And Development and Competitiveness, and European Integration of South
Eastern Europe’, Euro-Asia Studies, June 2009, Vol. 61, No. 4, June
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Assessment of demand and supply for local R&D in
SEE - Supply of RTD is still above demand for RTD
Source: Radosevic, S (2009) ‘Research And Development and Competitiveness, and European Integration of South Eastern Europe’,
Euro-Asia Studies, June 2009, Vol. 61, No. 4, June
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Proxies for quality of supply and demand for RTD in SEE
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Supply
– Quality of education
– Quality of math and science teaching
– Local availability of spec. research
and training
– Quality of public (free) schools
– Quality of scientific research institutes
– Availability of scientists and engineers
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Demand
– Extent of staff training
– Firm level technology absorption
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Production process sophistication
Buyer sophistication
Customer orientation
Company spending on R&D
Government procurement adv. techn
products
– Capacity for innovation
Note: These are responses of local business communities which are assessing
demand and supply for RTD from the perspective of their economy, Not some
objective external benchmark. Source: WEF data 2006
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The sources of productivity improvements in CEE:
Global value chains and production capability
improvements
1. Productivity of FDI subsidiaries is significantly explained by ‘quality control’
(production capability) (Majcen et al, 2009)(se next slide)
2. Production capability: upgrading quality in existing products seem to be a
more automatic process. Countries converge in quality (measured by unit
prices) with the international leaders at an annual rate of 5-6%
unconditionally (Hausman, Hwang and Rodrik, 2007)
3. This ‘automatism ‘ in the case of CEECs it is actually FDI assisted or
subcontracting driven mastery of production capability
4. Some CEECs (Hungary, Croatia, Lithuania, Romania, Slovenia) have lesser
scope for further quality improvements and must instead move to new
products (EBRD, 2008)
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The challenge for ‘periphery’: Missing levers
to growth?
EU Centers of excellence
MNCs: parents and other subsidaries
weak horizontal linkages
National centres of excellence
Local FDI subsidaries
Weak vertical integration & horizontal fragmentation
Vertical and horizontal links do not work in WeBa ?
Policy focus:
- Support to the weakest agent: local business R&D
- Transfer function on supply side (R&D)
- Transfer function on demand side (FDI/local firms)
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Invest in ‘knowledge infrastructure’ but only closely
linked to careful assessment of BES demand
• S&T Parks and dangers of ‘surrogate
modernization’
• Priorities: First: projects and services (functions),
and only than buildings (organisations)
• Give preference to technology specific (critical
mass) vs. generic parks (preferably linked to large
enterprises)
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Support current drivers of technology
upgrading
• Quality (ISO9000 etc is precondition to export) and
vocational training (key to developed production
capability)
• Support for domestic firms to become quality
suppliers for MNEs (cf. Hungarian INTEGRATOR)
• Support programs for engineering and software
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Support integrated and complementary support to
NTBFs
Public R&D <> Minigrants <> Matching Grants <> Venture Capital
< Business support services >
• Policy support is focused on opposite edges of new technology
venturing
• Funding gap
– mini-grants: to explore commercial feasibility of technical idea
– matching grants: to encourage risk sharing with firm +
potential to create linkages
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WeBa 2010: how ‘to extend transition
agenda’?
• Policy package of the last 15-20 years: focus on business
environment (market automatism) + add well functioning
state (2009)
• Meagre results: slower X than of CE; large trade and CA
deficits; appreciating ExRat; quality of life worse in 2009
than in 1989 (except Rom and Alb)
• Add dimension of industrial upgrading into analysis and
policy coupled with FDI/industrial networks
• How to address demand shock? Further opening of
regional (EU/SEE) market (cf. ‘jugosfera’ as the remaining
lifeblood of local businesses). EBRD and regional
projects?
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