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Prof. Luciano G. Coutinho Prof. Mariano Laplane NEIT/IE - UNICAMP

Structural Transformation and Innovation Systems: industrial dynamics and innovation systems (a value added approach). Prof. Luciano G. Coutinho Prof. Mariano Laplane NEIT/IE - UNICAMP. Globelics: BRICS – Workshop Aalborg February 2006.

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Prof. Luciano G. Coutinho Prof. Mariano Laplane NEIT/IE - UNICAMP

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  1. Structural Transformation and Innovation Systems: industrial dynamics and innovation systems(a value added approach) Prof. Luciano G. Coutinho Prof. Mariano Laplane NEIT/IE - UNICAMP Globelics: BRICS – Workshop Aalborg February 2006

  2. BRICS portrait: population, area, density, total and per capita domestic product Population Nominal GDP 2004 Density Area inhabitants total 2004 2 total per capita km 2 per km thousands Brazil 183.913 8.547.403 22 593.091 3.225 Mexico 105.699 1.958.201 54 676.148 6.397 China* 1.285.342 9.560.961 134 1.895.000 1.474 India 1.087.124 3.287.263 331 680.682 626 Republic of Korea 47.645 99.268 480 679.675 14.266 Russian Federation 143.899 17.075.400 8 582.319 4.047 South Africa 47.208 1.221.037 39 212.777 4.507 * revised. Source: UNCTAD Handbook of Statistics, 2005.

  3. BRICS and selected countries: Gini index/ social unequality Most recent data Brazil 59.3 Russia 31.0 India 32.5 China 44.7 South Africa 57.8 Mexico 54.6 Korea, Rep. 31.6 USA 40.8 Japan 24.9 Is the highly unevenly distributed income a serious development problem for Brazil and South Africa? Is China increasing social unequality a problem for the future? Source: UNDP

  4. BRICS growth performance in the last 25 years: as well known... • China is the world’s fastest growing economy in the last 25 years, with a very high investment rate • Brazil’s economy has shown an irregular and mediocre performance, well bellow its potential • India: since the nineties GDP is growing quite well and more regularly; however it can do better • Russia: after the deep crisis of the nineties (disorganization of the state-socialist economy) oil prices have helped an economic recovery

  5. BRICS growth performance in the last 25 years: as well known... • South Africa: GDP growth performance has improved slowly, however well bellow its potential as investment lags behind • Korea: GDP growth is high in per-capita terms and its per-capita income has approached the level of a developed economy • Mexico: plugged to the US economy it shows a relatively weak performance, below its potential

  6. 1980-89 1990-00 2001-04 Brazil 3,1 2,9 1,8 Mexico 0,8 3,1 1,7 Rep. of Korea 8,5 5,8 4,6 China 10,6 10,4 8,8 India 5,7 6,0 6,1 Russia - -4,7 6,1 South Africa 1,4 2,1 3,2 Source: UNCTAD Handbook of Statistics, 2005. Annual average growth rates of total real GDP (%)

  7. 1970-79 1990-99 2000-2003 Brazil 21.7 19.5 20.5 Russia na 20.8 17.6 China 27.0 33.2 39.2 India 15.8 22.3 22.4 South Africa 26.4 16.3 14.8 World 24.4 22.1 21.1 BRICS: gross fixed capital formation (% GDP), 1970-2003 Source: NEIT-IE-UNICAMP from BIRD’s World Development indicators

  8. Industrial performance and growth • China: spectacular GDP growth is certainly related to the high competitiveness of its manufacturing system • Brazil, Russia, South Africa: manufacturing has lost relative importance and weight; international competitiveness has faltered… • India: manufacturing has grown, on average, at the same pace of GDP Question: is an improvement of manufacturing’s competitiveness an important factor for long term growth?

  9. BRICS: manufacturing value added (% GDP), 1993 and 2003 1993 2003 Var 1993-2003 Brazil 20.5 18.6 -9.3 Russia 22.8 22.5 -1.3 China 32.8 37.6 14.6 India 14.7 15.6 6.1 South Africa 18.9 18.0 -4.8 Developed 18.9 19.0 0.5 Developing 22.7 22.8 0.4 Source: UNIDO

  10. Growth and competitiveness • East-Asian economies have grabbed an additional 13 percentage points of world trade in the last 25 years • China’s performance is, by far, the more dynamic • Brazil’s share of world exports has stagnated (with a slight recent improvement) • India has also shown some moderate improvement from a low start basis • South Africa has lost relative importance in world exports • Russia’s recent improvement related to oil and gas price boom Apparently, global competitiveness has been a key factor for fast growth

  11. Evolution of market share of world merchandise exports Value of Exports Country 1980 1990 2003 2004 Developed Countries 65,3 72,0 64,8 63,1 Developing Countries 29,5 24,3 32,1 33,5 . Latin America+ Caribbean 5,5 4,1 5,0 5,1 . Brazil 1,0 0,9 1,0 1,1 . Mexico 0,9 1,2 2,2 2,1 . Developing Asia 18,0 16,9 24,7 25,8 . West Asia 9,9 3,9 4,1 4,4 . Russia - - 1,8 2,0 . South Asia 0,7 0,8 1,1 1,1 . India 0,4 0,5 0,8 0,8 . East Asia 7,1 12,0 19,4 20,1 . China 0,9 1,8 5,8 6,4 . Rep. of Korea 0,9 1,9 2,6 2,8 . Africa 5,9 3,2 2,4 2,5 .South Africa 1,3 0,7 0,5 0,5 Memo: PED's excl. first-tier NIEs and China 24,8 14,8 16,8 17,4 Source: UNCTAD

  12. BRICS’ share in world manufacturing value added (1993-2003) • China has doubled its share in global manufacturing (in value added terms) • India’s manufacturing share grew but its relative size is yet small • Brazil and Russia: their manufacturing systems have lost share in the world economy; however some improvement is taking place after 2003 • South Africa’s share in global manufacturing has stagnated

  13. BRICS and selected countries: share in world manufactured value added, 1993 and 2003 1993 2003 Var 1993-2003 Brazil 2.5 2.1 -16.0 Mexico 1.0 1.1 10.0 Korea, Rep. 2.2 3.4 54.5 China 3.5 6.9 97.1 India 0.9 1.2 33.3 Russia 2.0 1.6 -20.0 South Africa 0.5 0.5 0.0 USA 21.2 23.3 9.9 Japan 22.4 18.2 -18.8 Source: UNIDO

  14. BRICS manufactured value added per capita (95’ constant US$), 1993 and 2003 Var 1993-2003 1993 2003 (%) Brazil 838 850 1.4 China 157 388 147.1 India 50 82 64.0 Russia 724 792 9.4 South Africa 681 749 10.0 Developed 4,784 5,710 19.4 Developing 239 356 49.0 The evolution of manufacturing productivity seems to be in line with overall growth performance in manufacturing

  15. Competitiveness in manufacturing high tech products seems to be a relevant driver of fast growth and yet an even more important factor for a strong export record • China has almost quadrupled its share of world’s high tech production. It has surpassed Korea and is now equivalent to Japan! • India has shown important advance but her share in high tech products is still small • Brazil and Russia: have shown a stagnant performance in world’s manufacturing of high tech products • South Africa’s presence in high tech is quite small

  16. BRICS and selected countries: share in world high-tech products exports (%), 1993 and 2003 1993 2003 Var 1993-2003 BRICS 2.7 8.5 217.8 Brazil 0.4 0.4 1.1 Russia 0.5 0.5 -11.0 India 0.2 0.4 100.9 China 1.5 7.0 359.3 South Africa na 0.1 - Mexico 1.2 2.0 75.9 Korea, Rep. 2.8 4.0 42.0 USA 18.1 13.3 -26.6 Japan 13.7 7.5 -45.4 World 100.0 100.0 - Source: NEIT-IE-UNICAMP from UNCTAD primary data

  17. BRICS and selected countries: high-tech products share in countries’ total exports (%), 1993 and 2003 1993 2003 Var 1993-2003 BRICS 11.5 24.3 111.0 Brazil 9.7 12.2 26.3 Russia 8.3 7.3 -13.0 India 8.1 13.6 67.3 China 15.0 34.0 126.9 South Africa na 10.0 - Mexico 19.9 26.0 30.2 Korea, Rep. 30.4 43.2 42.2 USA 35.0 39.0 11.3 Japan 34.1 33.6 -1.5 World 24.1 28.8 19.9 Source: NEIT-IE-UNICAMP from UNCTAD primary data

  18. Growing importance of high-tech sectors in China’s economy (“two tunnels” strategy) • China’s industrial system has diversified extraordinarily in the last 25 years: it has a very large intermediate goods base (steel, cement, petrochemicals) and a very large non-durable consumption goods sector. In recent years the development of durable consumption goods and of high-tech sectors (computers, consumer electronics, etc.) has speeded up • High-tech products already accounts for 36% of Chinese exports (2005) • Employment in high-tech sectors is growing fast and has accounted for 19% of the total in 2002

  19. Growing importance of high-tech sectors in China’s economy (“two tunnels” strategy) • China has escalated R&D expenditures from 0,6% of GDP in the mid nineties to almost 1,9% last year • Enrollment in high education (specially in engineering) has expanded very rapidly, as well as students pursuing graduate studies abroad (circa 150 thousand) • China’s recent record in global patent applications is impressive

  20. China: manufacturing employment (% total manufacturing employment), 2002 ISIC (Revision 2) China Food products 6.0 Beverages 2.0 Tobacco 0.5 Textiles 10.6 Wearing apparel,except footwear 5.9 Leather products 3.1 Wood products,except furniture 1.1 Furniture,except metal 0.8 Paper and products 2.6 Printing and publishing 1.2 Industrial chemicals 10.1 1.2 Petroleum refineries 4.3 Pottery,china,earthenware 1.5 Glass and products 1.0 Other non-metallic mineral prod. 6.1 Iron and steel 5.3 Non-ferrous metals 2.3 Fabricated metal products 3.9 Machinery,except electrical 9.8 Machinery electric 10.4 Transport equipment 6.6 Professional & scientific equipm. 1.3 Other manufactured products 2.4 Rubber and Plastics products Source: UNIDO

  21. Selected countries: R&D expenditures (%/GDP), 1996 and 2001 1996 2001 Var 1996-2001 Brazil 0.77 1.05 36.0 Mexico 0.31 0.34 11.2 Korea, Rep. 2.60 2.96 13.7 China 0.60 1.09 82.4 India na na - Russia 0.90 1.16 South Africa na na - Japan 2.77 3.09 11.4 USA 2.55 2.80 9.9 World 2.06 2.46 19.5 Source: NEIT-IE-UNICAMP from BIRD’s World Development Indicators

  22. Selected countries: enrollment in high education as a % of the total, 1990 and 2000 1990 2000 Var 1990-2000 Brazil 11,2 16,2 44,0 Russia 52,1 62,8 20,5 India 6,1 10,6 74,6 China 3,0 12,7 326,6 South Africa 13,2 14,6 10,4 Korea, Rep. 38,6 77,6 101,1 USA 75,2 70,7 -6,0 Japan 29,6 47,7 61,1 Mexico 14,5 20,5 41,1 World 16,0 23,9 49,9 Source: NEIT-IE-UNICAMP from BIRD’s World Development Indicators

  23. BRICS and selected countries: stock of patent applications, residents, 2001 Number % Brazil 6,706 0.7 Mexico 594 0.1 Korea, Rep. 74,001 7.9 China 30,324 3.2 India 234 0.0 Russia 25,046 2.7 South Africa 175 0.0 USA 190,907 20.3 Japan 388,390 41.4 World 939,267 100.0

  24. Comparison of manufacturing structures • Whereas the share of high-tech sectors in manufacturing (value added) ranges between 14% and 17% (automotive-complex included) in Brazil, Russia, India and South Africa it has attained circa 35% in the case of China • By the same token, employment in high-tech sectors varies around 8,5% of the total manufacturing employment (for Brazil, Russia, India and South Africa) whereas in China it represents 19% • If the automotive-complex is excluded the share of employment in high-tech sector (to Brazil, Russia, India and South Africa) would vary from 2,6% to 5,5% of the total

  25. Comparison of manufacturing structures • Relative shares of so-called “traditional” consumer-goods manufacturing (e.g. food and beverages, tobacco, textiles and wearing apparel, leather products and footware) are higher in Brazil, India, Russia and South Africa • On the other hand, the relative shares of natural resource-based and of primary commodity-based manufacturing is quite different among the BRICS, reflecting different geography and natural endownments

  26. BRICS: manufacturing structure (share in countries’ MVA), 2002 ISIC Description Brazil India S. Africa World 15 Food and beverages 13.5 8.7 14.8 10.5 16 Tobacco products 0.8 0.6 1.7 0.7 17 Textiles 2.6 6.9 2.0 2.1 18 Wearing apparel, fur 1.7 0.7 2.5 1.5 19 Leather, leather products and footwear 0.9 1.0 0.8 0.5 20 Wood products (excl. furniture) 3.7 0.1 2.8 1.9 21 Paper and paper products 2.8 2.3 4.5 3.0 22 Printing and publishing 2.2 1.7 3.1 4.5 23 Coke,refined petroleum products,nuclear fuel 12.8 5.2 5.1 3.1 24 Chemicals and chemical products 11.1 21.3 11.1 10.5 25 Rubber and plastics products 3.7 3.1 3.8 3.4 26 Non-metallic mineral products 4.6 5.4 3.2 3.6 27 Basic metals 4.5 10.4 13.8 5.2 28 Fabricated metal products 8.3 2.6 7.4 5.9 29 Machinery and equipment n.e.c. 5.6 6.4 6.3 6.9 30 Office, accounting and computing mach. 1.3 0.7 1.6 4.5 31 Electrical machinery and apparatus 2.7 7.8 1.4 6.2 32 Radio,television and communication equip. 3.4 1.5 1.3 9.8 33 Medical, precision and optical instruments 2.2 0.8 0.4 2.4 34 Motor vehicles, trailers, semi-trailers 4.3 6.9 8.7 8.1 35 Other transport equipment 5.1 5.8 1.4 2.5 36 Furniture; manufacturing n.e.c. 2.4 0.2 2.2 3.2 Source: UNIDO

  27. BRICS: manufacturing employment (% total manufacturing employment), 2002 ISIC (Revision 3) Brazil Russia India S. Africa Food and beverages 19.8 14.7 17.4 13.8 Tobacco products 0.3 0.2 6.6 0.2 Textiles 5.2 3.7 15.7 5.3 Wearing apparel, fur 7.9 2.8 4.2 9.6 Leather, leather products and footwear 6.9 1.0 1.9 1.5 Wood products (excl. furniture) 4.0 3.8 0.7 6.1 Paper and paper products 2.7 1.5 2.2 3.2 Printing and publishing 3.6 2.0 1.5 4.8 Coke,refined petroleum products,nuclear fuel 0.5 1.2 0.9 1.0 Chemicals and chemical products 5.7 6.0 10.1 7.8 Rubber and plastics products 5.3 2.2 3.6 5.5 Non-metallic mineral products 5.4 6.9 6.2 3.3 Basic metals 3.1 7.7 7.2 7.6 Fabricated metal products 6.1 4.0 3.6 4.8 Machinery and equipment n.e.c. 6.6 16.3 5.4 5.5 Office, accounting and computing machinery 0.3 0.2 0.3 0.1 Electrical machinery and apparatus 2.6 2.9 3.0 6.2 Radio,television and communication equipment 1.3 - 1.3 1.1 Medical, precision and optical instruments 1.0 2.8 0.8 0.4 Motor vehicles, trailers, semi-trailers 5.2 5.4 3.3 5.9 Other transport equipment 1.0 1.3 2.2 1.0 Furniture; manufacturing n.e.c. 5.2 1.9 1.7 5.4 Recycling 0.2 0.7 0.0 0.1 Source: UNIDO

  28. Different manufacturing profiles • Russia: a very strong defense-related industrial complex, specially in aeronautics & space; a large production-base in non-electric machinery and equipment; a powerful manufacturing complex related to oil and gas • Brazil: a broad set of competitive natural-resource-based and agricultural-based manufacturing (steel, non ferrous metals, pulp and paper, wood products, sugar and ethanol, orange juice, soya-derivates, coffee); a fairly diversified durable-consumption goods industry; one leading firm in the aeronautic sector

  29. Different manufacturing profiles • India: a very large service-economy, her manufacturing capability is relatively small and concentrated in basic non-durable consumption goods (textiles and wearing apparel, food and beverages); with the exception of a strong chemical and chemical products-complex the base of intermediate goods production is relatively small, as well as the automotive-complex • South Africa: has a powerful mineral resource-based industry (steel and non-ferrous metals) and her manufacturing system is concentrated in non-durable consumption goods (food and beverages, tobacco, textiles and apparel); relatively strong in the automotive sector

  30. Innovation and S&T Systems • Russia: strong position in high education, with a powerful scientific system particularly dedicated to space and defense-related activities; expanding R&D expenditures and patent activities are related to the former specializations • India: an expanding scientific system with good quality but very weak in industrial R&D (and patenting); employment of highly qualified human resources biased towards services (IT related) • Brazil: an improving scientific system (with good international rating); R&D activities are very uneven and concentrated, with some success cases (like in agribusiness) patent activity is weak; some key sectoral innovation systems have been disintegrated in the nineties

  31. Innovation and S&T Systems • South Africa: very weak R&D and industrial innovation activities; limited scientific capability • China: a remarkable effort in building up a national scientific and technological innovation system as a purposeful strategy; R&D activities growing at a very fast pace given the increasing economic importance of high-tech sectors

  32. BRICS: recent export performance with remarkable improvement of foreign exchange position • China’s large trade surplus derived from her highly competitive performance in manufacturing exports and… • Very favourable terms of trade (prices of oil, metals and other commodities) in last three years have helped Brazil, South Africa, Russia and India to strengthen their foreign exchange position Question: could this recently gained foreign exchange robustness help to put in place new national development strategies? Or could it result in indulgence (in relation to current performance and to the historical record)?

  33. Recent external robustness Reserves/external debt (%) External debt/exports (%) Source: JP Morgan, Consensus Forecasts and projections.

  34. Recent external robustness External debt service/exports Source: JP Morgan, Consensus Forecasts and projections.

  35. Are there domestic financial constraints? • Brazil and Russia: their banking systems had retracted but can they expand in order to finance capital formation? How can the capital market help? Issues: how to create reliable institutional conditions and juridical protection for investors, creditors and for securitized assets? • China: how to cope with the low risk-standards of the banking system? Is there a role for the capital market? • India: how to enhance the contributions of both (bank credit and capital market)? • South Africa: is everything fine? What is lacking to accelerate private investment?

  36. Financial Structure: outstanding domestic debt securities, stock market capitalization and bank credit, 2004

  37. Outstanding Domestic Corporate Debt (Securities)

  38. Some lessons and questions for research • There is not a single development model to be mimetized. The Chinese model may elicit many useful lessons but cannot be automatically copied. An interesting view-point: how did the Chinese successfully “copied” many of the Korean strategies (of the 70’s and 80’s)? • The strengthening of competitiveness and innovation in manufacturing seems to be a necessary condition for a better long term growth performance

  39. Some lessons and questions for research • Keeping up and developing new competitive conditions in low and medium tech intensive sectors, such as to allow for dynamic trade performances and for the creation of employment opportunities, seems to be a wise strategy for BRICS • Innovation (including DUI and STI modes), education and skill-apprenticeship (thru experience and thru training) should be a key focus for promotion of local development, as sub-regional promotion policies seem absolutely prioritary to BRICS’ efforts to reduce social and regional unequality

  40. Some lessons and questions for research • How to take advantage of existing capabilities and of revealed competitive (sub-sector/niche) activities to capture dynamic potential of the high-tech sectors? In other words, how to build up from existing competitive advantage (however scarce) in high-tech? • How to take full advantage of the ICT-revolution as smart users/adaptors (to the rest of the economy)? How to avoid the risks of info-exclusion? • How to capture/explore new opportunities in activities/niches/services related to ICT waves? How to create some fundamental conditions (what are they?) in order to minimize policy-risks?

  41. Some lessons and questions for research: macro-questions • Are the fundamental macroeconomic conditions ready for building up a new national development strategy? From the outlook of the foreign-exchange position the answer seems to be yes, but how about the fiscal and financial conditions? • Are there sufficient political and societal aspiration and cohesion around a new (potential) development strategy? Is such national strategy consistent and clear enough? • What are the critical challenges to be surpassed in order to reach it?

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