Lecture 4: Technological change and industrialization

Facts on technological change and Industrialization

• The speed of the catching up • Trends in world trade• The highly concentrated benefits• The scale of restructuring• The complexity of industrial dynamics• Overall assessment

Periods during which output per capita doubled

0 10 20 30 40 50 60

China 1977-1987

Rep. Of Korea 1966-1977

Brazil 1961-1979

Turkey 1957-1977

Japan 1885-1919

United States 1839-1886

United Kingdom 1780-1838

A Technology driven taxonomy of products

• Primary products• Manufactured products

– Resource based: e.g. food, wood & forestry products, processed minerals, petroleum products

– Low technology: e.g. textiles, clothing, footwear, toys, sports goods, simple metal products

– Medium technology: e.g. automotive products, TVs, machinery, chemicals, steel

– High technology: Advanced ICT and electricals, pharmaceuticals, aerospace, precision instruments

Global exports are increasingly driven by innovation (annual growth rates, 1985-98)

-5 0 5 10 15 20

Primary

Resource based

Low tech

Medium tech

High tech

1995-981990-951985-90

Manufactured exports by industrial and developing countries, 1985-98

Rates of export growth, 1985-98 Developing world’s export shares

0

5

10

15

20

25

Primary RB LT MT HT

Industrial Developing

0

10

20

30

40

50

60

Primary RB LT MT HT

19851998

Only 12 countries account for 90% of developing world’s total manufactured

exports ($ million)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000Ch

ina

Kore

a

Taiw

an

Mex

ico

Sing

apor

e

Mal

aysi

a

Thai

land

Braz

il

Philip

pine

s

Indo

nesi

a

Indi

a

H. K

ong

19851998

Technology upgrading is vital for success: shares of high/medium tech products in total

0

10

20

30

40

50

60

70

80

Phi

lippi

nes

Sin

gapo

re

Mex

ico

Mal

aysi

a

Kor

ea

Taiw

an

Thai

land

H.K

ong

Chi

na

Bra

zil

Arg

entin

a

Indi

a

Indo

nesi

a

19851998

Chart 5-1 Korea Strategic alliances

KSIA HEI

Samsung

LG Semicon

Equipment andSuppliers

Intel

SGS Thomson

Toshiba

Mitsubishi

Siemens

General Electric

Apple

Array Microsystems

Micron

Harris Microwave Semiconductor

NECIGT TI Oki

Hitachi Motorola

Micron

TI

Sundisk

Compass

Siemens

Compaq Rambus

Metaflow

Fujitsu

AT&T (NCR)

IBM

Maxtor

Image Quest Technologies Laser Byte BMI

Hyundai

DNS Korea Dai Nippon Screen – Samsung

POSCO Huls MEMC – Samsung/POSCO

LG Semicon - Monsanto Siltron

Dong Yang – Sumitomo Dongwu

The key to Korean success: A national system of learning

[taken from the Mathews book]

Chart 6-1 Taiwan strategic alliances

TSIA

TEEMA

ITRI/ERSO

ASMI

MXIC

Nan Ya

UMC Powerchip (UMAX)

MV

VSC

Winbond

WSMC

TSMC

Matsushita (DRAM)

NKK

Philips

MIPS

VLSI HP (PA-RISC)

Toshiba (DRAM)

SST (flash)

Symphony Lab

C-CubeMicrosystems

Etron

Oki

Siemens (ProMos)

Mitsubishi

IBM

TI(Micron)

Oki

IBM

NEC

Philips

Fujitsu

WaferTech

AMD

Altera

Analog Devices

ISS

Toshiba

Cirrus Logic Xilinx ISSI and others

UICC

USC USIC Utek

SMS

The key to Taiwan success: A system of strategic alliances

Industrial Policy in Developing Countries

Back to the 1970s - Technological change and industrialization

• Embodied (and imported) technological change– Linked to fixed capital investment (which was

considered as the driving force of development)

– Then, emphasis shifted on investment decisions, relative prices and appropriate technologies

– An interesting debate had emerged on the short-term cost of technological transactions

Back to the 1970s – Endogenous Technological in Developing Countries

• Differences in the efficiency of process industry plants with similar technologies

• Diverging industrialization trajectories

• Insights from evolutionary thinking on knowledge accumulation [learning]

1. Continuous incremental, engineering-based improvement: processtechnology, methods of organising production, diversification and upgrading in productspecifications and designs, etc.

2. Continuous improvement in technologies linking stages in valuechains: hardware (e.g. transport and computer-based systems) and organisation/management

3. Technology search (and research and training) for acquiring andabsorbing technology

4. Acquisition of technology : machinery and equipment, and in the designs andspecifications of materials, products and components

5. Design, (reverse) engineering and project management: for new productionfacilities, to diversify/upgrade products, or to source components, materials and equipmentfrom local suppliers

6. Research and development, plus design and engineering : to introducetechnologies that cannot be acquired (competitively) from foreign sources, and for introducingnew products and processes that permit competitive entry to domestic or foreign marketsindependently of foreign technology sources.

Different Types of ‘Innovation’/Technical Change

How did Korea do it?

Large firms (chaebol) as vehicles of developmental resource leveragePrior experience in mass manufacturing (eg electronics)Prior market entry contactsPrior OEM contractual links

Leveraged access to product technology eg circuit designs from Silicon Valley

Leveraged access to process technologyeg US suppliers and Japanese engineers

Leveraged access to strategic alliances

How did Taiwan do it?

Taiwan -- started with smaller firms

Utilized public sector research instituteseg ITRI Industrial Technology Research Institute

Strategy of managed diffusion of technologies

Foreign partners -> ITRI -> small Taiwan firms

Use of innovative institutions, R&D alliances

0

1

2

3

4

5

6

7

8

9

$US

Bill

ion

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Year

IC packaging

IC manufacturingIC design

Source: ERSO/ITRIS

Taiwan: IC related revenues: 1989-1998

Starts at back-end of value chain, and moves forward

How is China doing it?

China is utilizing all three models:

Model 1 Large firms as vehicles China: State-owned enterprises

Model 2 Smaller firms plus public sector RIsChina: Township enterprises; scientific research institutes

Model 3 MNC-linkageChina: Open door policy since 1978

Results: Developmental resource leverage through three avenues simultaneously “Walking on three legs”

The Second-Mover industrial development model

Second-Mover’s characteristics:• Enter market when tech/products

mature, which implies risk averseness.

• Imitate, copy, incremental improvement, learning by doing.

• Inherit first-mover’s accumulated capabilities, but usually exclude core technologies and competencies at initial stage.

• Utilizing accumulated organization capabilities in order to upgrade and up-scale

• Extract economic rent from scale efficiency, i.e. mass production to lower costs.

• Advantage lies in technology know-how, manufacturing and project execution capabilities.

Source: Amsden and Chu (2003)

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Patterns of Technological Development

PHASE I: INFRASTRUCTURE DEVELOPMENT FOR FDI• Solicitation of FDI• Creation of attractive investment and regulation regimes• Public investment on IT, energy and transportation infrastructuresPHASE II: LOCAL CAPABILITIES AND TECHNOLOGY ACQUISITION• Offset policies for market access• Technology transfer and technology acquisition strategies• Expanded incentives to local producers• Incentives for increasing local value addedPHASE III: INDIGENOUS R&D AND COMMERCIALISATION

PROCESSES• Government funding of R&D• Investment in technology commercialization• Investment in higher education and human resources• Targeted promotion of innovation at the sectoral level

Technological Capabilities and Industrialization –an assessment of the literature

• Against production function analysis [the TFP debate]

• Qualitative methodologies and case studies

• Definitions difficult to measure (and to compare)

• Policy implications: from best practice to benchmarking (what is missing is: a) the micro-macro linkages, and b) the dynamic context.

Challenges [the UNIDO report is a good example]

– East Asian crisis and exogenous shocks (open economies … transmission channels)

– Diffusions of technologies, product cycles and production networks

– The limited success of policy imitation– Phase III of technological development [the

technological frontier]– Lack of criteria for allocation of resources– Dual production systems (informal sector vs. firms

moving close to technological frontiers) – Findings from other streams of research

Technological change and industrialization: a selective review of recent literature

I. The Aggregate approach• Technology=investment [the macro-view]• Human capital externalities• Co-ordination failures• Political economy considerations

II. The Non-aggregate approach • Government failures

– (intervention, lack of regulation)• Credit constraints• Insurance markets• Local externalities• Incomplete contracts, within generations and across generations• Social behaviour

III. The Evolutionary approach • Technology gaps

– [ trajectories explained by technology regimes, institutions and firms]

Readings…

• All three papers.