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REVIEW OF BANK LENDING IN SCIENCE, TECHNOLOGY & INNOVATION CAPACITY BUILDING

REVIEW OF BANK LENDING IN SCIENCE, TECHNOLOGY & INNOVATION CAPACITY BUILDING. A Cross-Country Comparison Cesar Yammal and Ursula Casabonne December 8, 2005. Presentation Overview. Objective of the review and methodology Frameworks to classify STI interventions Country analysis India

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REVIEW OF BANK LENDING IN SCIENCE, TECHNOLOGY & INNOVATION CAPACITY BUILDING

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  1. REVIEW OF BANK LENDING IN SCIENCE, TECHNOLOGY & INNOVATION CAPACITY BUILDING A Cross-Country Comparison Cesar Yammal and Ursula Casabonne December 8, 2005

  2. Presentation Overview • Objective of the review and methodology • Frameworks to classify STI interventions • Country analysis • India • Korea • Brazil • Mexico • Cross-country comparison • Commonalities • Differences in content • Differences in methodology

  3. Objective of the review and methodology • Purpose: • To “uncover” successful past interventions in STI capacity building that may be applicable to new projects (WB lending as a proxy indicator for sector development) • Choice of projects: • Completed major STI projects • Industrial upgrading projects • Human resource development projects (as they relate to STI capacity-building) • Excluded from the review: agricultural research and extension, fertilizer production, environmental, and industrial pollution projects • Choice of countries: • Long-standing involvement of the Bank in these sectors • Technology leaders in their regions • Desk-study: • Revision of project appraisal reports, project completion reports and post-completion evaluation studies • Validation of findings with experts (starting with this presentation)

  4. Frameworks to classify STI interventions • Role of actors: STI users and producers. • Nature of government intervention: demand and supply-side intervention. • Types of deficiencies in the NIS that STI interventions seek to remedy: financial resources, incentives, capabilities, opportunities. • Breadth of interventions: vertical and horizontal. • Degrees of STI capacity: capacity to absorb and adapt existing techniques and capacity to innovate and generate STI knowledge. • Carl Dahlman’s K4D framework: Policy and institutional regime, education system, information infrastructure, innovation system. • Sanjaya Lall’s firm-centered STI framework: factor markets (skills, capital and information), supporting institutions (MSTQ system, SME support system, R&D system), incentives (macroeconomic environment, trade policy and industrial policy). • Tatyana Soubbotina’s national technology learning models: traditionalist slow learning, passive FDI-dependent, active FDI-dependent, autonomous, creative-isolated, and creative-cooperative.

  5. Country analysis:India

  6. Country analysis:India • Supporting selected industries to achieve higher value added. • Financing of industrial subsector studies to improve the understanding of the problems facing the sector and contributing to the design of lending program in the industrial sector (cements, software, electronics, automotive). • Absorption of imported technologies in selected industries (cement, petrochemicals, electronics). • Technology learning component to projects: Electronics Industry Development Project 1989-1996 ($302.5 m) included a component to train electronic technicians. • Skills formation for STI absorption and adaptation: (Vocation and Technical Training projects,1989-1999, $793 m). • Funding for institutional development of Indian Institutes of Technology and Regional Engineering Colleges: • Capacity expansion and modernization of laboratories: 1,100 institutions were built. • Teacher training: foreign fellowships and establishment of teacher training centers. • Development of curricula: establishment of curricula development centers. • Focus on building linkages with industry through apprenticeship programs. • Targeted to the poor: 50% of students were poor.

  7. Country analysis:India • Building institutional capabilities of financial intermediaries for technology investments in industry • Supporting the Industrial Credit and Investment Corporation (ICICI) to build institutional capabilities (14 Industrial Credit and Investment Project loans, 1955-1987, $733m). • Technical Development Fund (Industrial Technology Development Project 1989-1997, $360m) set up to provide resources for rapid import of embodied and disembodied technology (a one-stop shop for importing technologies). • R&D Spread Fund (Industrial Technology Development Project 1989-1997, $360m) loans to promote industry-sponsored research at public R&D institutions and the Indian Institutes of Technology. The fund was managed by a technology-oriented unit of ICICI, which helped identifying technology institutions for the proposed projects  helped to overcome information and trust barriers between researchers and business. • Financing industrial imports (e.g. 11 Industrial Imports projects, $1,330m). • Loans to the private sector to finance imported raw materials & capital goods in vital sectors of the economy (agriculture, transportation, power).

  8. Country analysis:Korea

  9. Country analysis:Korea • Role of government as catalyst for industry growth. • Korean Institute of Electronics Technology (KIET) built from scratch under the Electronics Technology Project1979-1987 ($29.0 m) for wafer fabrication, semiconductor research and training of private sector personnel. • RD&E agenda set by KIET’s management in consultation with industry • KIET demonstrated feasibility for semiconductor acquisition and development in Korea. In 1983, the private sector took over the semiconductor industry, rendering KIET obsolete; facility sold.

  10. Country analysis:Korea • Support of Technology Development Banking: • (3-Technology Development Project + Financial Intermediation Project Series 1982-1997, $184 m). • Financing and institutional strengthening (staff is key) of recently created Korea Technology Development Corporation (KTDC, later known as KT Banking Corporation and KT Banking Network). • Evolved from joint ownership with industry and subsidized interest rates to a fully privatized entity in 1999 (50 private shareholders in 1996). • Financial Products: loans, contingency loans, direct equity investment. • Technical services: equipment leasing and factoring; brokerage of technology transfer and training management consultancy to SMIs • Commercial criteria: technological feasibility, markets, profitability, management capabilities • Spin-off of the Korea Technology Investment Corporation to finance technology start-ups • 3,000 projects supported in first 10 years in three sectors (later expanded to eight): • Machinery/ metal • Electric/ electronics • Chemicals • SMI proportion of funding grew from 19% (1st project) to 88% (4th project).

  11. Country analysis:Korea • Relatively late but significant support to public R&D Centers: (3-Technology Advancement Project Series 1990-1995 $108 m). • Purchase of sophisticated equipment for general quality improvements of public research centers to: • increase R&D activities, implement joint projects, provide quality services to industry and support MSTQ. • improve graduate level teaching • “11” Beneficiaries (mergers and spin-offs): Genetic Engineering Center; Industrial Technology Center (ITC); Advanced Institute of Science and Technology (KAIST); Electrotechnology Research Institute, Institute of Energy and Resources; Institute of Geology, Mining and Materials; Institute of Science and Technology; Institute of Technology; Basic Science Center; Standards Research Institute; National Institute of Industrial Research. • Key “ingredients”: • clear focus on SMIs (by this time large firms are conducting their own R&D). • ITC designed new products for SMIs to manufacture, helped integration with large manufacturers • Integration of support functions: design, manufacture, quality assurance, exports. • industry brought into undergraduate and graduate education • Part-time teachers drawn from industry • Practical work of engineering student in laboratory and industry • Over 20% of students at KAIST sponsored by industry • quality improvements certified by foreign accreditation agencies.

  12. Country analysis: Brazil

  13. Country analysis: Brazil • Skills development at the vocational, technical and higher education level (Vocational Training Project, Technical Training Projects, Higher Educational Improvement Project, 1977-1990 and 2000-2005 ). • Financed the hardware (buildings, equipment and institutional materials and the software (staff training, fellowships, R&D). • Assisted the institutional reform of technical training • Provided access to student loans and reform of regulatory framework of higher education. • Supporting STI (horizontal approach) (PADCT I, II, III, $304 m). • PADCT I supported R&D in 6 fields: chemistry, chemical engineering, biotechnology, geosciences, mineral technology, instrumentation. (PADCT I is attributed to the takeoff of biotechnology in Brazil. Major weakness was the lack of linkages to industry. • PADCT II emphasis was funding PhD and Masters students in predefined science areas. • PADCT III placed greater emphasis on addressing the missing linkages between R&D institutions and firms. • Technology platforms: establishment R&D consortia and partnerships to identify technology gaps in sectors. • Matching funds granting facility • Sectoral funds: Tax on specific industries to mobilize funds for R&D for those industries. • Millennium Science Initiative: formation of research networks on strategic themes (17 Centers of Excellence). Transparent procedures for competition for awards.

  14. Country analysis: Brazil • Industrial upgrading in industry: • Transfer of technology and technology know-how to petrochemical industrial through the provision of technical advisory services by foreign engineering firms (Copesul Petrochemical Project 1979-1985, $85 m). • Supporting small and medium industries (SMIs):(Development Banking Projects 1976-1990, 605 million). • Loans extended to Banco Nacional de Desenvolvimiento Economico e Social (BNDES) to support lending to small and medium industries through state and regional development banks.

  15. Country analysis:Mexico

  16. Country analysis:Mexico • Multiple interventions for the generation, diffusion, and application of knowledge for innovation(Knowledge and Innovation Project 1998-2005, $300 m). • Science and Technology Research • Creation of a number of funds for research projects and graduate level scholarships co-financed by S&T Council and line ministries (sectoral funds) or states (mixed funds). • Industry-University Linkages • Restructuring of 28 public R&D Centers • Equipment • Emphasis on industry orientation, increased cost recovery • Matching grants for joint industry-university projects • Creation of 24 university technology services offices, cost effective ($20 K per university), self-sustainable, evolved into a peer to peer network • Enterprise Technology Enhancement • Technology Modernization Program for SMEs (across the board) • Network of consultants, intermediary agents • Catalytic effect of SME Technology Evaluations on self-developed projects • Regional Technology Centers • Pilot Venture Capital Fund • Up to 20% public contribution, managed by NAFIN (a public development bank)

  17. Cross-country comparison

  18. Cross-country comparisonCommonalities across World Bank projects • Long term involvement, continuity (no gaps) • Successful activities/ project design • Catalyst of new STI areas • Software (India) • Semiconductors (Korea) • Biotechnology (Brazil) • STI Capacity “Building Blocks” • Development of factor markets (technical skills and capital) • Development of public R&D and general higher education system. • Governments drive the STI agenda • …but differences in: • Content • Methodology

  19. Cross-country comparisonDifferences in Content of World Bank projects

  20. Cross-country comparisonDifferences in Methodology

  21. T. Soubbotina’s national technology learning models • Crystal metaphor • Right environment (leadership) • Difficult, dynamic and slow growth process (seed, nucleus, cluster). • Dimensions of crystals: STI learning capacity & STI learning opportunities • Human capability for STI learning • Most accessible opportunities for learning from foreign sources created by capital goods imports and FDI • More demanding opportunities for learning from domestic and foreign sources through domestic R&D • Most demanding opportunities • for learning through • knowledge markets and • international STI • cooperation • Success in using STI • knowledge for improving • technological structures • of a country’s MVA and • manufactured exports

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