China and India as Emerging Technological

Powers

Carl Dahlman Georgetown University

V Knowledge Economy Forum PragueMarch 28-30, 2006

©cjd

Share of Global GDPA Two Millennium Perspective

(Madison 2000, WDI 2005) ©cjd©cjd

Share of Global GDP (1990 Internatinal $)

0%

5%

10%

15%

20%

25%

30%

35%

40%

0 200 400 600 800 1000 1500 1600 1700 1820 1870 1913 1950 1973 1998 2000 2003

China

India

United States

Japan

Western Europe

World GDP PPP (constant 2000 International $) Share (%)

0.00

5.00

10.00

15.00

20.00

25.00

30.00

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

World GDP PPP Share for different regions (1980-2003)

©cjd©cjd

High income: OECD ex. US & Japan

United States

East Asia & Pacific

Japan

Europe & Central Asia

Latin American & Caribbean

South Asia

Sub-Saharan Africa

Middle East & North Africa

Global View: Knowledge Economy Index(un-weighted)

©Knowledge for Development, WBI©cjd

Real GDP 2003 (Trillions of 1995 international $)

Russian Federation$1.15t

Japan3.12t

Canada$0.84t

Germany$1.98t

France$1.42t

Italy$1.36t

United Kingdom$1.40t

Brazil$1.19t

Mexico$0.81t

India$2.69t

China$5.60t

United States$9.45t

-2

0

2

4

6

8

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

Real GDP per capita (constant 1995 international $) 2003

Ave RGDP per capita growth 1991-2003 (%)

Relative Size 15 Largest Economies 2003

©cjd

Real GDP (PPP): Projections 2004-2015 (Using 1991-2003 Average Growth Rates)

0

2

4

6

8

10

12

14

16

2003 2005 2007 2009 2011 2013 2015

Trillions of 1995 international $

India China BrazilCanada France GermanyItaly Japan MexicoRussian Federation United Kingdom United States

India

China

United States

JapanGermany

United Kingdom

France

Italy

Canada

Mexico

Russian Federation

Brazil

©cjd

China India Most Recent

©cjd

Comparisons 1995 to Most Recent

©cjd

China India Innovation PillarScientists & Engineers in R&D

Scientific &Technical PublicationsPatents in US

©cjd

Total R&D Expenditure (PPP, 1996 constant)

Russia

J apan

USAustralia

Denmark

Canada

UK

NetherlandKorea

SpainItalyPoland

Austria

Switzerland

Finland

France

Germany

Turkey

China

IndiaBrazil

0

1000

2000

3000

4000

5000

6000

0 0.5 1 1.5 2 2.5 3 3.5

R&D expenditure as % of GNP

Global R&D Effort in Comparative Perspective (Data for 2002)

Source: World Bank SIMA Database ©cjd©cjd

China India Innovation System

©cjd

China India Education

©cjd

Share of Global Merchandise Exports1980-2004 (percentage)

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Source: WTO Database, 2005©cjd

©cjd

United States

Germany

Japan

China

NetherlandsItaly United Kingdom

France

Canada

China--StrengthsVery high economic growth, large internal marketVery high savings and investment rateExcellent at tapping into global knowledge through direct foreign investment and Chinese DiasporaBecoming world’s manufacturing baseVery large supply of excess labor will continue to give it low wage advantageBut moving rapidly up value chain from labor intensive to more technology intensive exports Efficient export trade logisticsCritical mass in R&D is beginning to be deployed to increase competitivenessStrong investments in education and trainingGovernment with strong sense of national purpose

©cjd

China -- LessonsImportance of nation state in

developing long term strategy for country,providing stable macroeconomic framework,pragmatism in transition to market economy developing an institutional means for development to take placefocusing for several decades on the importance of education and science and technology

Importance of integration to world economy and of trade in goods as engine of growthVery effective use of direct foreign investment to move up technology ladderStrong investments in human capital as fundamental step to make the transitionEffective use of Chinese Diaspora in high tech parks and to bring in technology and access to markets

©cjd

India -- StrengthsJumped from traditional rate of 2-3% growth in past decades to 6-8% last decadeStrong science and engineering capabilities centered in chemical and software areasIs becoming worlds service center for software development and back office offshore outsourcingIs also becoming center for contract innovation work for multinational companiesHas large critical mass of educated, skilled, and English speaking knowledge workers and can increase this stockHas network of successful Indians in US and Europe providing links to markets, technology, and financeRelatively deep financial marketsIs strengthening export orientation, and seeking strategic alliances, but strength is limited more to intangible trade rather than tangibles trade because of high infrastructure and regulatory costs

©cjd

India -- LessonsImportance of investments in high level technical, scientific, and managerial capital through network of Indian Institutes of Technology and Indian Management InstitutesImportance of turning brain drain to brain gain by harnessing Indian Diaspora in global high tech industry Importance of moving from self-reliance to greater international integration to accelerate and sustain growthImportance of improving the whole legal and regulatory environment to stimulate greater innovation and get more out of growing critical mass of resources allocated to R&D Importance of tackling necessary reforms in regulatory regime and improving infrastructure and education to really emerge as major export power ©cjd

ConclusionsGlobalization increasing; global competition intensifyingWorld Moving toward three economic blocks-US, EC, and AsiaAsian Block rising in economic importance

East Asia, and within East Asia, China’s entry into world stage unprecedented in speed, scope, and scaleIndia on threshold of becoming another global economic powerBoth have critical mass in education and innovation capability which they are beginning to deploy very effectivelyKey lesson from China is how aggressively and effectively it has become major global player by making effective use of global knowledge and trade, plus investment in education

Countries in ECA region will face increasing pressure toUpgrade broad economic incentive and institutional regime and participate more actively in global systemStrengthen formal education and life long learning to be able to constantly restructure and competeEffectively tap global knowledge and combine it with domestic innovation efforts to raise productivity and competitvenessAlign themselves as part of global value chains

©cjd

Annex

©cjd

Benchmarking Countries in the Knowledge Economy: The Knowledge Assessment Methodology

KAM: 80 structural/qualitative variables to benchmark performance on 4 pillars Variables normalized from 0 (worst) to 10 (best) for 128 countries and 9 regionswww.worldbank.org/kamBasic scorecard for 14 variables for two points in time, 1995 and most recentKnowledge economy index (KEI) which includes 3 variables for each of the four pillars:

Economic and institutional regime: tariff and non-tariff barriers, rule of law, regulatory qualityEducation: literacy, secondary and tertiary enrollment rates Innovation: researchers in R&D, scientific and technical scientific publications, and patents in the USICTs: fixed and mobile phone lines per 1000 people, computer per 1000, internet users per 10,000

©cjd©cjd

KE Basic Scorecard Compared

©cjd

Innovation System Compared

©cjd

Education Comparison

Czech Republic / ECA / G7

©cjd

Czech Republic, Slovakia, Slovenia

©cjd

Belarus, Poland, Ukraine

©cjd

Estonia, Latvia, Lithuania

©cjd

Bulgaria, Hungary, Romania

©cjd

Bosnia and Herzegovina, Croatia, Serbia and Montenegro

©cjd

Albania, Armenia, Georgia

©cjd

Kazakhstan, Tajikistan, Uzbekistan

©cjd

EndCarl J. DahlmanLuce Professor of International Affairs and Information TechnologyGeorgetown UniversityEmail: cjd42@georgetown.eduTelephone: 202 687 8045

©cjd©cjd