HIGHER EDUCATION, COMPETITIVENESS, AND INNOVATION...

HIGHER EDUCATION, COMPETITIVENESS, AND INNOVATION CAPABILITY,

IN SOUTH AND EAST ASIA

A BENCHMARKING EXERCISE

By

Alfred Watkins and

Anubha Verma

Science, Technology and Innovation Program Education Department

Human Development Network

Background Discussion Paper For The World Bank Regional Conference on Higher Education

Kuala Lumpur

December 3-5, 2007

Introduction The purpose of this benchmarking note is to compare the performances of a sample of South and East Asia countries in areas of global competitiveness, knowledge economy achievement, export structure, and education, particularly higher education. The goal is to (i) measure each country’s progress in promoting sustainable economic development and poverty reduction; (ii) to pinpoint areas of strength as well as areas where further improvements may be needed; and (iii) to show how higher education reforms (along with complementary reforms in primary, secondary, technical and vocational education) can promote sustainable growth, poverty reduction, global competitiveness and rising standards of living, especially for the poorest strata of society. The countries discussed in this note are Bangladesh, Cambodia, Fiji, India, Indonesia, Malaysia, Mongolia, Nepal, Pakistan, Philippines, Sri Lanka, Timor-Leste, Thailand, and Vietnam. Singapore and Korea are included as comparator countries.

Part 1 Innovation and Competitiveness-The role of Higher Education

Universities, Competitiveness and National Innovation System: What is their goal? The national goals are to accelerate growth, reduce poverty, achieve the MDGs, and improve the competitiveness of local industry, thereby creating higher wage, higher-skilled jobs that generate rising standards of living for all. In today’s global economy, tertiary education and innovation are indispensable tools for achieving those goals. To support these national goals, higher education must be well aligned with the private sector development strategies and with innovation strategies—i.e. the pieces must fit together.

Fig 1 Pieces must fit together

Innovation capacity is closely linked to the quality of workforce, and hence to the quality of higher education system. It is also closely linked to enterprises because it gives them the tools to be productive and competitive: hence the interrelationship between education, innovation, and competitiveness.

Innovation

Higher Education

Private Sector Development

Dimensions of Science, Technology, and Innovation (STI) Capacity A well-rounded STI capacity means capacity building at four levels of the economy: • National policy organizations • S&T organizations such as universities and R&D institutes • Enterprises—these are both users of knowledge and creators of knowledge • The pool of human capital

Building STI capacity requires making judicious choices on what capacity to invest in. STI capacity is quite often equated with the capacity to create knowledge in R&D labs. However, lessons of experience suggest that developing countries—especially in the early stages of growth—would do well to focus more on their capacity to absorb and adapt knowledge for productive uses.

Fig 2 Dimensions of STI Capacity Building

National (and local) government capacity to

formulate and implement coherent S&T programs

and policies

Enterprise capacity to utilize knowledge to

innovate and produce higher value added,

globally competitive goods and services

Education, vocational

training, and R&D institutes

Technologically and scientifically skilled workforce trained to work with modern equipment and production processes

Import, adapt, and adopt knowledge produced

Produce and Use New

Knowledge via R&D

Part 2 Benchmarking Exercise

Different benchmarking indices measure different dimensions of innovation capacity, competitiveness and higher education:

• World Economic Forum’s Global Competitive Index—to see how institutions, innovation, and education (among others) contribute to competitiveness

• World Bank’s Knowledge Economy Index (KEI)—for knowledge economy readiness

with focus on innovation and education

• UNCTAD’s Innovation Capability Index—for underlying technological capacity with a focus on inputs to innovation (education and R&D)

• UNIDO’s Competitive Industrial Performance Index—for revealed technological

capacity in industry with a focus on manufacturing competitiveness

• World Bank’s Doing Business Indicators—for how conducive the business environment is for enterprises

In addition to the above five benchmarks, we also illustrate the export structure of countries by i) technology category and by ii) commodity type. This is to understand how education and innovation can contribute to value-addition and diversification of exports.

1. Global Competitiveness Index This chart presents the overall ranking of a select group of countries. The rankings are out of a total of 131 countries.

Source: WEF Global Competitiveness Report (2007-2008); data unavailable for Fiji and Lao-PDR Pillars of Competitiveness The scorecards below benchmark countries along eight pillars of competitiveness1:

• Higher education and training • Ability to absorb technology • Ability to innovate • Infrastructure • Institutions • Financial market sophistication • Business Sophistication • Macroeconomic Stability

1 The latest WCR spells out twelve pillars of competitiveness. This paper uses eight of the twelve. The remaining four are: size of the market, primary education and health, goods market efficiency, and labor market efficiency.

Thailand (28)

India (48)

Indonesia (54)Vietnam (68)

Philippines (71)Sri Lanka (79)

Pakistan (92)Mongolia (101) Bangladesh (107)Cambodia (110)

Nepal (114)

USA (1)Singapore (7)

Malaysia (21)

Korea (11)

Timor-Leste (127)

Most countries score relatively well on macroeconomic stability. This is a very positive achievement. But it is not sufficient, as evidenced by the fact that many countries which do well on the macroeconomic stability dimension still perform poorly in terms of overall competitiveness. Their macroeconomic performance must be matched by complementary strides in higher education and training, business sophistication, the capacity to innovate, and the capacity to absorb technology produced elsewhere. It is important to note the distinction between the capacity to innovate and the capacity to absorb technology. The ability to innovate measures the ability to invent new technologies and expand the frontiers of knowledge via R&D, patenting, etc. The ability to absorb technology measures the ability to acquire existing technologies that were invented elsewhere and to use them to reduce poverty, achieve the MDGs, and promote sustainable economic development. In most countries, SMEs will be the ones who will be using this technology and know-how to create jobs and produce competitive goods and services. This is why a good business environment is so important. However, research institutes and universities, which have the human resource capacity to help SMEs find and adapt existing technology, also have an important role to play in this whole process. This means that universities will always be playing two critical roles in society – (i) education and training and (ii) economic development and technology diffusion. Several countries –Malaysia, Thailand, Indonesia, and India—score relatively better on higher education than on their ability to absorb technology. This suggests that these countries may not be fully exploiting their higher education and training systems to promote innovation and productivity. Pillars of competitiveness

Pakistan, Korea, Singapore

0

2

4

6

Higher Education andTraining

Ability to AbsorbTechnology

Ability to Innovate

Infrastructure

Institutions

Financial M arketSophistication

BusinessSophistication

M acroeconomy

Source: WEF Global Competitiveness Report (2007-2008); data unavailable for Fiji and Lao-PDR

2. World Bank Knowledge Economy Index (KEI) This index benchmarks countries along four dimensions: • Education, measured by overall literacy and secondary and tertiary enrollment • Innovation, measured by researchers in R&D, patents, and scientific publications • Institutions and Incentives, measured by tariff barriers, regulatory quality and rule of law • ICT, measured by telephone, computer, and internet use per thousand population

Knowledge Economy Index

East Asia and Pacific

Korea

M alaysia

ThailandPhilippines

Sri LankaM ongolia

IndonesiaVietnam

South Asia

Pakistan

Nepal

Bangladesh

Lao PDR

India

0

1

2

3

4

5

6

7

8

9

0 1 2 3 4 5 6 7 8 9

1995

Mos

t Rec

ent

Source: World Bank KAM Database (2007); data unavailable on Fiji, Timor-Leste, Cambodia Countries below the 45 degree line are losing ground. They ranked higher in 1996 than they do in the most recent survey. Conversely, countries above the 45 degree line – including Vietnam, Mongolia, Sri Lanka, Malaysia, Lao PDR, India, Indonesia, and Bangladesh – have improved their performance since 1996.

Four Pillars of Knowledge Economy Why are some countries doing better while others are falling behind? The charts below provide some preliminary answers to these questions. On the education pillar, several countries—Korea, Pakistan, India, Indonesia, Philippines, Sri Lanka, and Nepal—have fallen behind. This is because although their secondary enrollment and adult literacy has registered good progress, their tertiary enrollment has improved slower than the rest of the world. This gap is further illustrated in the scorecards on human capital.

Source: World Bank KAM Database (2007); data unavailable on Fiji, Timor-Leste, Cambodia

Education

0 1 2 3 4 5 6 7 8 9 10

Pakistan

Bangladesh

Nepal

Lao PDR

India

Indonesia

Vietnam

M alaysia

Sri Lanka

Philippines

Thailand

M ongolia

Korea, Rep.

1995 Recent

Innovation

0 1 2 3 4 5 6 7 8 9 10

Lao PDR

M ongolia

Nepal

Bangladesh

Vietnam

Sri Lanka

Pakistan

Philippines

Indonesia

M alaysia

Thailand

India

Korea, Rep.

1995 Recent

Economic Incentives and Institutions

0 1 2 3 4 5 6 7 8 9 10

Bangladesh

Lao PDR

Pakistan

Nepal

Vietnam

Indonesia

India

M ongolia

Sri Lanka

Philippines

Thailand

Korea, Rep.

M alaysia

1995 Recent

ICT

0 1 2 3 4 5 6 7 8 9 10

Nepal

Bangladesh

Lao PDR

PakistanSri Lanka

India

Indonesia

Vietnam

PhilippinesMongolia

Thailand

Malaysia

Korea, Rep.

1995 Recent

Pillars of Knowledge Economy: A country by country view

Indonesia (1995, Recent)

0

5

10

Institutions andIncentives

Innovation

Education

ICT

Indonesia-weighted by population (1995, Recent)

0

5

10

Institutions andIncentives

Innovation

Education

ICT

India-weighted by population (1995, Recent)

0

5

10

Institutionsand Incentives

Innovation

Education

ICT


3. Human Capital for Knowledge Economy Most of the countries have made good progress in secondary education and adult literacy. This is a welcome achievement. But tertiary enrollment and professional and technical training comes across as the two weak areas for most countries—and hence deserves more attention in higher education policies and programs.

Korea

0

5

10Adult Literacy Rate

Gross TertiaryEnrollment

Gross SecondaryEnro llment

Prof. and Tech.Workers as % of

Labor ForceQuality o f Science

and M athEducation

Quality o fM anagement

Schools

Brain Drain

Extent of StaffTraining

Malaysia

0

5


Gross TertiaryEnro llment




and M athEducation


Schools

Brain Drain


Thailand

0

5



Gross SecondaryEnrollment


Labor ForceQuality of Science

and M athEducation

Quality ofM anagement

Schools

Brain Drain

Extent o f StaffTraining

Indonesia

0

5






and M athEducation


Schools

Brain Drain


India

0

5






and M athEducation


Schools

Brain Drain


Vietnam

0

5

10

Adult LiteracyRate





and M athEducation


Schools

Brain Drain


Sri Lanka

0

5






and MathEducation

Quality ofManagement

Schools

Brain Drain


Mongolia

0

5






and MathEducation


Schools

Brain Drain


Nepal

0

5






and M athEducation


Schools

Brain Drain


Pakistan

0

5

10

Adult LiteracyRate





and M athEducation


Schools

Brain Drain


Bangladesh

0

5

10

Adult LiteracyRate





and MathEducation


Schools

Brain Drain


Philippines

0

5




Pro f. and Tech.Workers as % of


and M athEducation


Schools

Brain Drain



4. A Closer Look at Innovation: What to invest in and when? The Knowledge Economy Index measures innovation in terms of R&D investments, patents, researchers, and scientific publications. Are these relevant indices for countries at an early stage of development? Should countries strive to improve their R&D and patenting performance or should they focus on something else instead? History can be an interesting guide on the “what” and “when” of innovation. Although most countries lag behind Korea in such innovation indicators as R&D spending, patents, publications, and researchers, Korea’s indicators in the early decades of growth (1960-1980) show that Korea did not focus on these variables during its early stage of development. It was only relatively recently that Korea made large investments in knowledge creation. The early decades were spent on building the capacity to absorb and use foreign technologies and to train a technically proficient workforce of engineers and technical experts. Using this lesson of experience, developing countries especially in the early years of growth would do well to focus their higher education programs on nurturing a well-trained technical workforce that aids absorption and use of knowledge.

Patents, publications, and researchers in R&D

0500

1,0001,5002,0002,5003,0003,5004,0004,500

Korea

India

Malays

ia

Thaila

nd

Phillip

pines

Indon

esia

Sri Lan

ka

Pakist

an

Vietna

m

Bangla

desh

Nepal

Patents Granted by USPTO, avg 2001-05 Technical Journal Art icles/M il. people, 2003Researchers in R&D / M il. People, 2004


R&D spending (% GDP)

0

0.5

1

1.5

2

2.5

3

Korea

Singap

ore India

South

Asia

Malays

iaNep

al

Bangla

desh

Mongoli

a

Thaila

nd

Pakist

an

Vietna

m

Srilank

a

Phillip

pines

Indon

esia

Latest 1999


Innovation in Korea: Early stages of development vs. now

Korea, R&D (% GDP)

0

0.5

1

1.5

2

2.5

3

1963 1970 1980 1990 2003

Source: World Development Indicators (2007)

Korea, Researchers/Million

0

500

1000

15002000

2500

3000

3500

1970 1980 1990 2003

Source: World Development Indicators (2007)

Korea, Patents (1965-2006)

0

1000

2000

3000

4000

5000

6000

7000

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

Source: USPTO, 2007

5. UNCTAD Innovation Capability Index

The Index is a combination of two components: 1. Human capital Index 2. Technological Activity index

Literacy rate as % of population X 1

R&D personnel per million population

Secondary school enrolment as % of age group X 2

US patents granted per million population

Tertiary enrolment as % of age group X 3

Scientific publications per million population

Source: UNCTAD World Investment Report 2005; Rankings out of 117 countries; Data unavailable for Nepal, Timor-Leste, Fiji

Philippines (64)

Mongolia (69)

Sri Lanka (79)

Indonesia (87)India (83) Vietnam (82)

Angola (117)

Pakistan (100) Bangladesh (106)

Malaysia (60) Thailand (54)

Sweden (1)

Korea (19) Singapore (26)

6. UNIDO Competitive Industrial Performance Index:

The Index is a combination of four variables: 1. Manufacturing value added (MVA) per capita 2. Manufactured exports per capita 3. Share of medium and high-tech activities in MVA 4. Share of medium and high-tech products in manufactured exports Source: UNIDO Industrial Development Report 2004; Rankings out of 93 countries; data unavailable on Cambodia, Timor-Leste, Mongolia

Indonesia (38) India (40)

Pakistan (49) Bangladesh (56)

Nepal (69) Fiji (68)

Sri Lanka (62)

Mali (93)

Singapore (1)Korea (10)

Malaysia (15)

Thailand (23)Philippines (25)

7. Export Structure Based on Technology Categories The export diagrams, together with the value-added charts immediately below, show that how a country produces is more important than what it produces—i.e. how much value it can add to products irrespective of the sector they belong to. If value-added is high, even resource based exports can translate into higher revenues and well-paid jobs and high standards of living. This is true for USA, Singapore, and Finland. Hence a high percentage of natural-resource based exports from Indonesia, Nepal, India, Thailand, or Sri Lank should not be seen as a weakness in the export structure. But if the value-added is low, even a high percentage of hi-tech does not translate into high income. This is true for Philippines. Countries that add high value specialize in knowledge intensive design and engineering functions, whereas countries that add less value specialize in low wage, assembly operations. From a statistical point of view, they are both engaged in high tech activities, but the value added and standard of living generated by these “similar” activities are quite different. Competing on the basis of value-addition requires a highly skilled workforce and a high quality secondary and tertiary education system.

Per Capita Income USD 38,165


Finland

Hi Tech22%

M edium Tech 30% Low Tech

10%

Resource Based 38%

Per Capita Income 25,274

Per Capita Income USD13,240

Per Capita Income USD 4,437 Per Capita Income USD 1,136

Source: Calculated from UN COMTRADE database using SITC-2 latest available data (2004)

Per Capita Income USD 942


India

Resoure Based 39%

Hi Tech1%M edium

Tech 20%

Low Tech40%

Per Capita Income 546







Value Addition: Agriculture and Manufacturing Countries at the bottom of value-added charts do need to invent new knowledge. To catch up on the value chain, they need to acquire, adapt, and use knowledge already existing and widely used elsewhere. Universities and government research institutes must play a major role in this process of technological learning needed for value-addition.

Agriculture Value Added Per Worker (Constant US Dollars)

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

N epal

T imo r-Leste

Vietnam

C ambo dia

B angladesh

India

Indo nesia

T hailand

P akistan

Sri Lanka

M o ngo lia

P hilippines

M alaysia

Ko rea

F inland

United States

Singapo re

M anufacturing Value A dded P er C apita (C o nstant US D o llars)

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000

Bangaldesh

India

Pakistan

Sri Lanka

Philippines

Indonesia

Thailand

Malaysia

Korea

United States

Singapore

Finland

Source: WDI, 2007; UNIDO, 2005

If Value Addition is Low, Hi-tech May not Translate to High Income The chart below further strengthens the observation that hi-tech is not an automatic route to prosperity. If the knowledge intensity of the activity is low then the resultant job quality and income levels will be low as well, even if the activity falls into hi-tech category.

Income versus Hi-Tech

Mexico

B'deshCambodia

Vietnam

Costa Rica

Sri Lanka

Thailand

Malaysia

Pakistan

ChinaIndonesia

Brazil

Argentina

Chile

ColombiaFiji

India

Philippines

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

0 10 20 30 40 50 60 70

Hi Tech (% of Manufacturing Exports)

GD

P P

er C

apita

(Con

tant

US

D)

Source: WDI, 2007

9. Export Structure by Types of Commodities The diagrams below show that the advanced economies have a more diversified export structure than the less advanced economies. However, they have followed different patterns of diversification. Hence a critical challenge for the higher education will be to nurture the right skills to help a country meet its unique diversification needs. Also, whatever be the pattern of diversification, the level of value-addition in each export category will determine the quality of jobs created in that sector and the level of income generated in that sector.

Source: WTO, 2007 (Latest data available is for the year 2005)

10. Business Climate: Necessary but not Sufficient for Innovation and Growth A country needs a well-functioning business environment to attract FDI and support local businesses. This is a necessary step to encourage entrepreneurship and commerce. However, a good business climate will automatically not result in good performance in innovation and competitiveness. A high-quality workforce and a proactive public policy for technological learning would have to be coupled with doing business reforms. This can be argued from the relatively poor doing business score for China or India, and even Korea does not figure in the top 20 business environments. But these countries have made, or are making, good strides in innovation and growth.

Source: Doing Business Report (2007); Rankings out of 175 Countries; Data unavailable on Fiji

Mongolia (45)

Pakistan (74)

Bangladesh (88) Sri Lanka (89)

Nepal (100)Vietnam (104)

Philippines (126)India (134) Indonesia (135)

Congo, D.R. (175) Timor-Leste (174)

Singapore (1)Thailand (18)

Korea (23)Malaysia (25)

Cambodia (143)

China (93)

Unbundling the Doing Business Indicators (2007)

Source: Doing Business Report (2007)

Learning Good Business Practices from Neighbors The South and East Asian countries show a mix of good and bad scores on the ten indicators of doing business. This provides a good opportunity to learn from high-performing neighbors on various aspects of business environment. Best and Worst Performers on business environment indicators Doing Business Indicator

Best Performer in the Group

Worst Performer in the Group

Starting a Business Sri Lanka (Rank 44) Cambodia (159)

Dealing with license Vietnam (Rank 25) Cambodia (Rank 159)

Employing Workers Malaysia (38) Nepal (150)

Registering Property Mongolia (Rank 16) Bangladesh (Rank 167)

Getting Credit Malaysia (Rank 3) Cambodia (174)

Protecting Investors Malaysia (Rank 4) Vietnam (Rank 170)

Paying Taxes Cambodia (Rank 16) India (Rank 158)

Trading Across Border Malaysia (Rank 46) Mongolia (Rank 162)

Enforcing Contracts Mongolia (Rank 41) Bangladesh (Rank 174)

Closing a Business Pakistan (Rank 46) Indonesia (Rank 136) Source: Doing Business Report (2007) Group excludes Korea and Singapore

References

1. World Bank, Doing Business: How to Reform, 2007, Washington, DC 2. World Bank, Knowledge Assessment Methodology (KAM) Database, 2007, available at: www.worldbank.org/kam 3. World Bank, World Development Indicators, 2007, Washington, DC 4. World Economic Forum (WEF), Global Competitiveness Report 2007-2008, available at: www.weforum.org 5. World Trade Organization, Statistical Database, 2007, available online at: http://www.wto.org/english/res_e/statis_e/statis_e.htm 6. UN, COMTRADE Database, 2007, available at: http://comtrade.un.org 7. UNCTAD, World Investment Report: Transnational Corporation and the Internationalization of R&D, 2005, Geneva 8. UNIDO Industrial Development Report: Industrialization, Environment and the Millennium Development Goals in Sub-Saharan Africa, 2004, Vienna 9. United States Patents and Trademark Office (USPTO), 2007, reports available at: http://www.uspto.gov/web/offices/ac/ido/oeip/taf/reports.htm

HIGHER EDUCATION, COMPETITIVENESS, AND INNOVATION...

Documents

Transcript of HIGHER EDUCATION, COMPETITIVENESS, AND INNOVATION...