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Mr. Itzhak Goldberg Advisor, Policy and Strategy World Bank

Knowledge Absorption and Growth in ECA - The Role of Government January 22, 2008 Itzhak Goldberg, Lee Branstetter, John Gabriel Goddard and Smita Kuriakose. Mr. Itzhak Goldberg Advisor, Policy and Strategy World Bank. Absorption >>> Innovation. Innovation = New to the World

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Mr. Itzhak Goldberg Advisor, Policy and Strategy World Bank

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  1. Knowledge Absorption and Growth in ECA - The Role of Government January 22, 2008 Itzhak Goldberg, Lee Branstetter, John Gabriel Goddard and Smita Kuriakose Mr. Itzhak Goldberg Advisor, Policy and Strategy World Bank

  2. Absorption >>> Innovation Innovation = New to the World Absorption = New to the Firm Absorptive capacity: Firm’s capacity to assess → modify → use Absorption e.g. new product, process Upgrade old product, process

  3. Channels of Absorption (&Innovation) Learning & Brain Circulation Trade & FDI Knowledge Flows: Patents, Citations Absorption R&D

  4. Channel I: Trade and FDI Surveys of circa 7000 ECA firms show: Export increasing their absorption by about 33% • JV with a multinational increasing their absorption by 41% • Policy : international openness

  5. Channel II: Learning and Brain Circulation • Education and training by firms • Brain-drain → Brain circulation. Models: India, Israel, Armenia • Policy: Investment in education and openness to attract returnees

  6. III: R&D for Absorption & Innovation • R&D for absorption, not JUST for innovation -- the “second face” of R&D • R&D output does not flow costlessly from developed to developing countries. China invests massively in R&D

  7. Channel IV: Patents and patents citations India and China overtake ECA7 Source: Authors’ calculations based on the U.S. Patent and Trademark Office CASSIS CD-ROM, December 2006 version. The graph compares counts of patents in which at least one inventor is based in one of seven ECA countries, India, or the People’s Republic of China. The ECA 7 are Russia, Hungary, Poland, Slovenia, the Czech Republic, Bulgaria, and the Ukraine.

  8. Market failures may justify government intervention to stimulate absorptive capacity in private sector BUT Policy design needs to account for government failures: capture, corruption,misaligned incentives AND… Role of Government – the Why?

  9. Skills and Human Capital India: Early publicly financed education - critical importance Investment Climate and Governance Russia: Poor investment climate (weak competition, red tape); governance: corruption, regional government capture by business Pre-Requisites

  10. National Innovation System

  11. Not in Western textbook: Set R&D Entry/Exit Free • Do state R&D Institutes crowd outnew institutions? • IPRs of R&D Institutes • Drain of R&D Institutes on budget

  12. Loans >> Risk taking↓↓ Tax holidays: start ups - no profit, Matching Grants for Consortia – target the Missing Link of “University-Business” R&D Finance: what not to do?

  13. Entry: Own, Manage and/or just Pay ? • Privately owned/managed & subsidized • Publicly owned & managed • Publicly owned & privately managed & subsidized

  14. Summary: Absorption<</ >> Innovation • Openness – free trade, FDI and cross-border K-flows • Brain circulation and investment climate • R&D: Business-Research Consortia • Set Entry/Exit Free • IPRs of local R&D

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