Knowledge Strategies for Development: Challenges for Korea Carl Dahlman World Bank KEDI WB Workshop...

Knowledge Strategies for Development:

Challenges for Korea

Carl DahlmanWorld Bank

KEDI WB WorkshopBalanced Regional Development and the Role of Higher Education

PohangFebruary 23, 2004

©Knowledge for Development, WBI

Structure of Presentation

1. Economic Growth in Historical Perspective2: The Knowledge Revolution3. A Knowledge Economy Framework4: Benchmarking Korea in the Global

Knowledge Economy5: Challenges for Korea in New Context6: Critical Issues for Korea’s Competitiveness7: The Role of Regional Innovation Systems

and Clusters8: Some Tough Issues for Discussion



World GDP/capita and Population A Two Millennium Perspective

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World GDP per capita (1990 international $) World Population (Million)

Source: Angus Maddison, The World Economy : A Millennial Perspective, OECD: Paris, 2001

GDP per capita

World Population (mill)

1: World GDP/Capita and Population

Growing Differences in GDP/Capita

Per Capita GDP for Selected Regions or Countries (1990 international $, 1480-1998)

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15000

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1480 1560 1640 1720 1800 1870 1950 1998

Western Europe

Eastern Europe

United States

Latin America

Japan

China

India

Other Asia

Africa

Source: Angus Maddison, The World Economy : A M illennial Perspective, OECD: Paris, 2001

Shares of World GDP - Constant US$ (1960 - 2002)

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1960 1965 1970 1975 1980 1985 1990 1995 2000

%

East Asia & Pacific

High income: OECD ex. US & Japan

Japan

United States

Sub-Saharan Africa

Middle East & North Africa(Light Blue)

Latin American & Caribbean

Europe & Central Asia South Asia(Grey)

High Income: Non-OECD(Black)


Eight Fastest Growing Economies (constant 1995 US$)

Growth Depends on Successful Knowledge StrategiesAt lower level of development (and S&T capability) it depends largely on effectively tapping into global knowledge (playing rapid catch-up)At higher levels of development (and S&T capability) it also depends critically on own innovative effortKorea and Taiwan have already made the transition from being primarily catch-up economies to becoming innovating economies

GDP/Capita Growth: Korea vs Ghana

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1960 1965 1970 1975 1980 1985 1990 1995 2000

K n o w le d g e m a k e s th e D if fe r e n c e K n o w le d g e m a k e s th e D if fe r e n c e b e tw e e n P o v e r ty a n d W e a lth . . .b e tw e e n P o v e r ty a n d W e a lth . . .

R e p . o f K o r e a

G h a n a

T h o u s a n d s o f c o n s ta n t 1 9 9 5 U S d o lla r s

D if fe re n c e a t t r ib u te d to k n o w le d g e

D if fe re n c e d u e to p h y s ic a l a n d h u m a n c a p ita l


2.The Knowledge Revolution Ability to create, access and use knowledge is becoming fundamental determinant of global competitiveness

Seven key elements of “Knowledge Revolution”

Increased codification of knowledge and development of new technologies

Closer links with science base/increased rate of innovation/shorter product life cycles

Increased importance of education & up-skilling of labor force, and life-long learning

Investment in Intangibles (R&D,education, software) greater than Investments in Fixed Capital in OECD


The Knowledge Revolution – cont.Greater value added now comes from investment in intangibles such as branding, marketing, distribution, information management

Innovation and productivity increase more important in competitiveness & GDP growth

Increased Globalization and Competition

• Trade/GDP from 38% in 1990 to 52% in 1999

• Value added by TNCs 27% of global GDP

Bottom Line: Constant Change and Competition Implies Need for Constant Restructuring and Upgrading


Implications for Developing Countries

Developing Countries run of risk of being left behind as a result of increasing importance of knowledge and of a widening knowledge divide with advanced countries.

They need to develop coherent strategies to deal successfully with the constant restructuring resulting from the knowledge revolution.

They will need to make more effective use of knowledge for their development--to become knowledge economies.


3: The Knowledge Economy

There are many definitions of the “Knowledge Economy”, many emphasizing just information technology and high technology

We take a broader definition: “An economy that makes effective use of

knowledge for its economic and social development. This includes tapping foreign knowledge as well as adapting and creating knowledge for its specific needs.”


Framework for Using K4DFour Key Functional Areas

Economic incentive and institutional regime that provides incentives for the efficient use of existing and new knowledge and the flourishing of entrepreneurshipEducated, creative and skilled peopleDynamic information infrastructure Effective national innovation system


KAM Methodology 2004

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

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

www.worldbank.org/kam Multiple modes offering wide range of

graphic representations and functionalities (1995 - Most Recent, comparison options)

Aggregate Knowledge Economy Index (KEI) – average of performance in 4 pillars – KI

Weighted and unweighted version – Innovation Variables


0

5

10GDP grow th (%)

Human Development Index

Tariff & nontariff barriers

Rule of Law

Regulatory Quality

Researchers in R&D / million

Patent applications granted by theUSPTO / million

Scientif ic and technical journal articles /million

Adult literacy rate (% age 15 and above)

Secondary Enrollment

Tertiary Enrollment

Telephones per 1,000 (mainlines +mobile)

Computers per 1,000 persons

Internet users per 10,000 people

1995 Most Recent Data

Korea

Basic Scorecard for Korea: 1995-2002

4: Knowledge Economy Index


5: Challenges for Korea

Korea is caught between higher technological capability of Japan (and advanced countries) and lower wage costs of China (and other developing countries)Needs to continuously move up the value chain and create profitable activities aimed at international markets, and not just in manufacturing

15 Largest Economies: GDP 2002 (Trillions of international $)

United States$10.14t

China$5.73t

South Korea$0.78t

India $2.69t

Indonesia$0.66t

Mexico $0.88t

Brazil $1.31t

Spain $0.85t

United Kingdom$1.51t

Italy $1.48t

France$1.55t

Germany $2.17t

Canada$0.90t

Japan 3.26

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0 5,000 10,000 15,000 20,000 25,000 30,000 35,000

GDP per capita (international $) 2002

Ave RGDP per capita growth 1990-2002 (%)

Russia $1.41t

Special Characteristics of KoreaHigh investments in R&D as share of GDP—almost 3.0%High investments in Education as share of GDP--11-12%, counting cost of tutoringBut not clear it is getting corresponding return from such high investmentsVery centralized development

Seoul: 47% population, 53% economic power, 73% corporate R&D centers, 77% venture business, 80% top 10 universities, 80% of public R&DIndustrial production very heavily dominated by large chaebol companies

6: Critical Issues for Korea

How to get bigger economic return from large investments in R&D and education?How to participate effectively in the global and regional economy?What is the role of regional innovation systems?

Challenges in R&D and InnovationKorea does invest a lot in R&D and has technological leadership in some areas but it is still relative small in global scaleKorea needs to improve the productivity of its R&D investmentsKorea needs to improve climate for innovation

Universities do very little R&DMost R&D and patenting is being done be few large chaebolNeed to create a more favorable climate for innovation

Average Total R&D Expenditure: Top 20 Economies1997 - 2000 (Bil of International $)

Brazil $9.8b

China $34.4b

Italy $13.7b

Spain $6.5b

Austria$3.7b

Belguim$4.6b

Netherlands$7.7b

Israel $3.6b

United Kingdom $23.9b

South Korea$16.2b

France $29.6b

Germany $47.2b

United States$230.8b

Japan$90.5b

Finland$3.6b

Switzerland$5.3b

Sweden$7.2b

Russia$9.3b

Australia $6.7b

Canada $13.8b

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0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0Average R&D Expenditure (% of GDP)

Average Scientists & Engineers in R&D (per mil

persons)

World Shares of USPTO Patent Count (1980 - 2001) excluding US and Japan

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Germany

Taiwan

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France

United Kingdom

South Korea

SwedenNetherlands

Challenges for Education and TrainingStock challenge: rapid creation and diffusion of knowledge means even adults constantly have to learn, therefore need

Multiple mechanisms for continuous training beyond formal education systemTo exploit potential of information and communications technologies to expand training opportunitiesEffective system for skills assessment and certification

Flow challenge: education system must teach students how to learn through their lifetime regardless of when they leave it: implies need for

Better teaching and learning pedagogies for core skillsBroader interdisciplinary approachesFinancing mechanisms to expand access and improve quality

Need to address both stock and flow challenges through better approach to life-long learning

Reform and re-allignment of public and private rolesAs well as domestic and foreign


Improving the Performance of Education and Training

Improve productivity of educationIncrease efficiency through less regulation, more accountability, greater flexibility to respond to needs of productive sectorImprove incentive regime for teachers and faculty

Change the content of educationImprove critical thinking and problem solving skills, Improve communication skills and ability to work in groupsTeach learning to learn

Develop more effective system of lifelong learningMore flexibility in terms of multiple pathways to different competenciesDevelop better system of just in time training


Participating More Effectively in Global EconomyIncreasing strategic alliances

With foreign firmsWith foreign research institutesWith foreign universities

Moving up global value chainsBecoming more productively integrated into global value chains controled by companies from other countriesFurther developing own brands and distribution networksMoving beyond manufacturing to services

7: What is Role of Regional Innovation Systems?

Regional innovation systems and clustersFour key institutions in clustersThe critical role of the universityFostering clustersImplications for policy

Regional Innovation Systems and ClustersThere is some evidence that dynamic clusters contribute to a region and a county’s competitivenessClusters are defined as geografic concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions that compete but also cooperate (Porter 1998, On Competition)Key benefit of clusters seems to be the externalities that result from specialization, information, and knowledge exchange, which reduce transactions costs and permit greater innovation and productivity increase

Key Institutions in ClustersFour key institutions

UniversitiesResearch InstitutesFirmsLocal Government

But real key is the network of interactions among them that produce valueTherefore policy should focus not so much on the key institutions, but their interactionsHardest part is how to achieve such combinations effectively and with what instruments

Critical Role of the UniversityEducation and Training

Training scientist and engineers, as well as entrepreneurs, and professionalsShould not be limited to formal training, but to lifelong trainingTherefore must be very responsive to needs of firms in cluster

Science and ResearchIn Korea universities are not so strong in researchTherefore research effort has to be strengthenedBut it must be relevant to needs of surrounding business

But perhaps key role is actually in facilitating networks

Relationship with former students and class networksContract research to industry or research centersPublic forums for discussion

Fostering ClustersMany efforts focus on strengthening individual components of clusterBut most critical is the interaction among the elements of clusterTherefore efforts have to give greater attention to programs that foster that interactivity

Joint researchContract research from firms to universities and research institutesMobility of personnel among three agentsSkills development programs

Fostering InteractivityShould go beyond specific region to interaction with other clusters in country

Many strong clusters exits in KoreaThere are strong complementarities among manuy of them

But should also include fostering interaction with clusters in other countries because of increasing globalization of knowledge

Exchanges of experiences and personnelResearch and production linkages

8:Some Tough Issues for DiscussionHow many regional innovation systems to push for?

What is the role of targeting and special incentives?Is there a risk that pushing for too many may compromise excellence and national competitiveness?Is there a trade-off between equity and excellence?

What are best strategies for promoting regional innovation systems?

How proactive a role can national or even local government take vs supporting or facilitating roleWhat is role of private sector in general and chaebol in particular?

KAM Normalization Procedure•Absolute values•Allocation of rankings•Normalization (0-10)Formula:Normalized (u) = 10*(Nw/Nc)

•Normalized (u) – normalized score allocated •Nw – no of countries with worse ranking•Nc – total sample of countries (121)


Innovation – Size matters


Innovation : Size matters – unweighted version



Average GDP/Capita Growth Rates1965-2002

Knowledge Strategies for Development: Challenges for Korea Carl Dahlman World Bank KEDI WB Workshop...

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