Table Of ContentGlobalization, Economic Growth
and Innovation Dynamics
Springer-Verlag Berlin Heidelberg GmbH
Further Publications by Paul J.J. Welfens
P.I.I.Welfens P.I.I. Welfens
Market-orientedSystemicTransfonna EconomicAspects ofGerman Unification
tions in EasternEurope Expectations, Transition Dynamicsand
Problems, Theoretical Issues,and Policy International Perspectives
Options . 2nd revised and enlarged edition
1992.XII,261pp. 20figs.,29tabs., 1996.XV, 527pp.34figs., 110tabs.,
Hardcover,ISBN3-540-55793-8 Hardcover,ISBN3-540-60261-5
M.W.Klein,P.I.I.Welfens
P.I.I. Welfens, D.Audretsch,
Multinationalsin the NewEuropeand
I.T.Addison and H.Grupp
GlobalThade
Technological Competition,Employment
1992.XV, 281pp.24figs.,75tabs.,
andInnovationPoliciesin OECD
Hardcover,ISBN3-540-54634-0
Countries
R.Tilly,P.I.I. Welfens 1998.VI,231pp. 16figs.,20tabs.,
EuropeanEconomicIntegrationas a Hardcover, ISBN3-540-63439-8
Challengeto Industryand Government
Contemporaryand Historical Perspectives I.T.Addison, P.I.I.Welfens
on InternationalEconomic Dynamics Labor MarketsandSocial Security
1996.X,558pp. 43figs.,Hardcover, WageCosts, SocialSecurityFinancing and
ISBN3-540-60431-6 Labor Market Reformsin Europe
1998.IX,404pp.39figs.,40tabs.,
P.I.I. Welfens Hardcover, ISBN3-540-63784-2
EuropeanMonetaryIntegration
EMSDevelopments and International Post
P.I.I. Welfens
MaastrichtPerspectives
EU EasternEnlargementand the Russian
3rd revised and enlarged edition
Transfonnation Crisis
1996.XVIII,384pp. 14figs.,26tabs.,
1999.X,151pp. 12figs.,25tabs.,
Hardcover,ISBN3-540-60260-7
Hardcover, ISBN3-540-65862-9
P.I.I.Welfens
European Monetary Union P.I.I.Welfens
Transition,InternationalImpact Globalizationofthe Economy,
and PolicyOptions UnemploymentandInnovation
1997.X,467pp. 50figs.,31tabs., 1999.VI,255pp. 11figs.,31tabs.,
Hardcover,ISBN3-540-63309-7 Hardcover, ISBN3-540-65250-7
P.I.I.Welfens,G.Yarrow
P.I.I. Welfens,G.Yarrow, R.Grinberg,
Telecommunicationsand Energy
C.Graack
in Systemic Transfonnation
TowardsCompetitionin Network
International Dynamics, Deregulationand
Industries
Adjustment in Network Industries
Telecommunications, Energy and
1997.XII,501pp.39figs.,Hardcover,
Transportationin Europe and Russia
ISBN3-540-61586-5
1999.XXII,570pp.63figs.,63tabs.,
P.I.I.Welfens,H.C.Wolf Hardcover,ISBN3-540-65859-9
Banking,International CapitalFlows
and Growthin Europe P.I.I.Welfens,I.T.Addison,
Financial Markets,Savingsand Monetary D.B.Audretsch, T.Gries, H. Grupp
Integration in a Worldwith Uncertain Globalization,EconomicGrowthand
Convergence InnovationDynamics
1997.XiV, 458pp.22figs.,63tabs., 1999.X,160pp. 15figs., 15tabs.,
Hardcover,ISBN3-540-63192-5 Hardcover,ISBN3-540-65858-0
Paul J.J. Welfens . John T. Addison
David B. Audretsch . Thomas Gries
Hariolf Grupp
Globalization, Economic Growth
and Innovation Dynamics
With the collaboration of
Stefan Iungblut and Henning Meyer
With 15Figures
and 15Tables
'springer
Prof. Dr. PaulJ.J.Welfens Prof.Thomas Gries
UniversityofPotsdam UniversityofPaderborn
European Institutefor Fachbereich 5,Wirtschaftswissenschaften,
InternationalEconomic Relations Volkswirtschaftslehre, Internationale
August-Bebel-Str.89 Wachstums- und Konjunkturtheorie
14482Potsdam WarburgerStr. 100
Germany 33095Paderborn
http://www.euroeiiw.de Germany
Prof.John T.Addison Dr.HariolfGrupp
UniversityofSouth Carolina FraunhoferInstituteforSystems
DepartmentofEconomics and InnovationResearch (lSI)
CollegeofBusinessAdministration BreslauerStr.48
The H. William CloseBuilding 76139Karlsruhe
Columbia, SC29208 Germany
USA
Prof. Dr.DavidB.Audretsch
Indiana University
InstituteofDevelopment
Strategies (SPEA)
Suite 201
Bloomington, Indiana47405
USA
[email protected]
LibraryofCongressCataloging-in-Publication Data
DieDeutscheBibliothek- CIP-Einheitsaufnahme
Globalization,economic growth and innovation dynamics: with IStables/ PaulJ.J.Welfens,JohnT.
Addison. David B.Audretsch, Thomas Gries. Hariolf Grupp (eds). - Berlin: Heidelberg; NewYork:
Barcelona:HongKong:London:Milan:Paris:Singapore:Tokyo:Springer.1999
ISBN978-3-642-08515-4 ISBN 978-3-662-03813-0(eBook)
DOl 10.1007/978-3-662-03813-0
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CISpringer.VerlagBerlinHeidelberg1999
OriginallypublishedbySprmger-VerlagBerlinin1999.
SoftcowrreprintofthehardcoverIstedition1999
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Preface
Sincethe 1980sas foreign direct investmenthas increased strongly, new countries
opened up as host countries (or became influential as source countries) and inno
vative forms ofinterfirmcooperationhave been established. This has lead to more
intense global competition. Rising foreign direct investment could stimulate eco
nomic growth worldwide to the extent that itcontributes to technology spillovers,
international technology trade, improved use ofknow-how and a higher overall
investment outputratio plus a higher marginal product ofcapital worldwide. The
spatial distributionofforeign investmentflows isinturn influencedbyregional or
localclusters ofR&D centers andthe availabilityofhuman capital orother factors
which can be profitably combined with firm specific advantages important for
multinational companies (MNCs). Moreover, public support for R&D>and the
quality oftheeducationsystem alsoplayarole forattracting MNCs.
In the 1980sand early 1990sinternational competition increasednotorily
in the OECD countries, but also worldwide. On the one hand, newcomers from
Asian NICs entered medium and advanced technology fields, on the other hand
the US, France and the UK as well as Russia reduced their emphasis on military
research and development (R&D) after 1990. Hence, the end ofthe Cold War led
to intensified competition in markets for civilian products. The ratio ofcivilian
R&D to GDP has increased in most countries worldwide and there are prospects
for arapid increase inR&D outlays insome NICs andthe PR China atthe turn of
the century. Moreover, the internet has reinforced access to new technological
knowledge.
The observable heterogeneity ofthe global growth process let to a large
body ofempirical and theoretical research. One ofthe main conclusions from the
empirical literature is that the hypothesis of absolute convergence formerly
predicted by growth economists does not hold, i.e. not all countries do automati
cally converge to the same steady state position.However, ifcountries are cluste
red, further statements can be made. Six "clubs" with similar developments in
terms ofincome levels and average growth can be identified: the industrialised
elite, the industrialized catching up countries, the strongly catching up countries,
the slowly catchingup countries,theslowly falling behind andthe strongly falling
behind countries. Overall a process of"conditional convergence" can be observed
for the first four convergence clubs while countries ofthe last two clubs tend to
diverge. Conditional convergence implies that an economy will converge to a
steady state that is characterised by a set offundamentals specific to the country.
Meanwhile a thousands of regressions have been run to identify those
fundamentals. The most important ones are the investment rate, the human capital
endowment, the R&D intensity and the countries integration into world markets.
The empirical results therefore strongly supportthe hypothesis that only countries
VI Globalization, EconomicGrowthandInnovation Dynamics
with sufficient abilities to innovate or acquire new technologies are able to
convergeintermsoftheirproductivitylevelsandincome.
EU research is not sufficiently specialized and innovations ofEU firms
often not in the most dynamic patent classes. Some informal coordination of
national R&D policies could be useful inthe future and the creation of EU-wide
R&D networks could be encouraged. However, -disregardingspecificexceptions
-thecreation ofanEU-wideR&Dnetwork shouldnotbeconsidered ifthere isno
alternative competing networkwithin Western Europe.EUfirms could be encou
raged to tap the R&D potential in eastern Europe and Russia where skilled
personnel often is available at lowcosts. Atthe bottom lineit is clear that in the
face ofglobalization EU countries have to improve education, training and R&D
effortsinordertomaintainaglobaltechnologicalleaderstatus.Lowequity-capital
ratios of firms in many EU countries raises doubts about the EU's ability to
successfully exploit new innovation fields where provision of risk capital is
important for survival and expansion ofnewcomers - more international bench
marking studies are necessary in the future, and one may recommend regular
benchmarking in all major policy fields. Capital marketpolicies are important as
anindirectwaytostimulateR&Dinthecommunity.
The most important economic challenge confronting Europe is to
restructure economic activity and move out of industriesbased on the traditional
factors of production and into those industries that are knowledge based. The
traditional view aboutthe processofstructural changeisthat the large enterprises
are the driving force of such structural change. Large organizations have
command over vast R&D resources. However, a compelling body of evidence
spanning a broad range of countries suggests that small and new firms play a
crucial role in triggering structural change. The reason that small and new firms
are a driving force behind structural change is that people start firms to pursue
ideas that otherwise would not be pursued by the incumbent firms. New firms
serve as agents of change, away from the status quo and towards new activities
thatarecontroversialanduncertain.
The greatest challenge for achievingefficientR&D policies in Europe is
toreduce thebarriers impedingthe mobilityandcommercializationofnew know
ledge.Europe hasnotperformedwellinappropriatingthereturns fromthe invest
ments made in newknowledge,both interms ofR&Dandhuman capital. Part of
this challenge lies in shifting policies away from targeting outputs and outcomes
totargetingknowledge inputs.
In recent years, one important characteristic oflabor markets in Anglo
Saxon countries at least has been the pronounced widening in skill differentials.
The long-standing shift in favor ofskilled labor and away from unskilled labor
would appear to have accelerated inthe lasttwo decades.The supply of skill has
increasedlessrapidly andunskilledwageshavedeclinedrelatively(and intheUS
absolutely).There islittledisputationintheUSandtheUKastothedominanceof
the relative demand shifts favoring the higher skilled, though there is more
ambiguity in continental Europe given intervals of rising skilled worker
Preface VII
unemployment. The controversy instead has to do with the sources of these
relativedemandshifts.
The two candidates are increasedinternationaltrade and skill-biased (i.e.
unskilled-laborsaving)technological change, each ofwhich falls underthe rubric
of"globalization." In both the US and the UK, decompositions ofthe aggregate
change in, say, nonmanualemploymenthave indicatedthat within-industrymove
ments dominatebetween-industryshifts.
The presenceofMNCswith distributedR&D facilities isamatteroffact.
GlobalisedR&D isincreasingfrom a low level inmost countries.The net outflow
ofR&D isaconcernfor some countries but whetheritisbetterto make "national"
companies work abroad and participate in foreign national systems or to invite
foreign companies to the own territory remains largely open. Technology spill
overs andknowledgeflows certainlyaccrueinboth cases and the debate ofthe net
R&D flows and their benefits is largely a question of employment within the
nationalterritoryand alsotax revenuesfrom local R&D,productionand services.
Ifnot the functional specification but the qualification ofthe employees
serves at a benchmarking criterion for the human-capital intensification, then for
majorOECD countries one arrives atthe following assessment. In the first halfof
the nineties one has to confirm a trend claimed already earlier that the share of
employees with a higher education degree (university, polytechnical or related
schools) and the share ofacademic staff(university degrees only) is increasing in
the manufacturing sector and in the service industries. This means that there is
tendency to employ relatively more highly qualified persons both in the service
sector, which isexpanding, and inthe manufacturingsector with aloss ofjobs.
A series of smaller European countries is strongly oriented towards
general universities and other non-orientedresearch anddoes spend comparatively
little money on oriented research. The Netherlands, Italy, Sweden and Germany
also belong to this group with a share of less than 50 per cent dedicated for
oriented research. The other EU countries and notably the United Kingdom and
France spentrelatively little on general basic research and put more emphasis on
orientedresearch(in case ofthe two last-mentionedcountries, for armamentalso).
Thus, wehave to conclude,country-specificpatterns ofspendinginbasic research
persisteven withinthe EuropeanUnion. ReportedlytheUnited States government
with its large share ofdefense research spends least on general basic research,
whereas Japan with a small defense R&D budget resembles the pattern of
Germany.
To the extent that a supply side R&D policy prevailed in the European
Union we have to emphasis that science-based innovation is important in many
cases but not in all. In global innovation, down-stream related processes such as
effective national lead-markets and demand stimulation and articulation are also
important. Inthis sense, it isrecommendedthat R&D policy shouldtry to warrant
that those lead-markets be inthe European Union where strong global players are
active in.In so far as by non-R&D measures the rapid and stable development of
VIII Globalization, &onomicGrowthandInnovationDynamics
those markets can be facilitated, R&D policy shouldjoin inwith other European
policiesinordertoachievethemaximumbenefit.
ps: The following study grew out of project No IV/97/03 for the
European Parliament. The authors would like to thank Nadine Richter, Ralf
Wiegert,AlbrechtKauffmannandTimYarlingforexcellenteditorialsupport.
Potsdam,May 1999 PaulJ.J. Welfens (coordinator)
TABLEOF CONTENTS
1. GLOBALIZATIONOFTHE ECONOMYANDINCREASINGINTERNATIONAL
COMPETITION 1
1.1 RisingIriternationalTrade inaBroaderPerspective 3
1.2 TheIncreasingRoleofForeignDirectInvestment 5
1.3 GlobalTelecomsNetworksandNewCommunicationTechnologies 10
1.4 RussiaandChinaasNewPlayers 12
1.5 IncreasingHighTechnologyCompetitionandRisingRoleofTrade
andFDI 14
1.5.1 MultinationalCompanies:RegionalConcentrationandIssues
ofInnovation 16
1.5.2 Competition, SkillRequirementsandLaborMarketsintheUS 20
1.5.3 EnvironmentalProblems,InnovationandOptimalGlobal
Growth 26
1.6 MNCs' RoleforEnvironmentalPolicyandSocialPolicies 27
1.7 Theory ofGlobalization:TradeandGrowthTheoryinaTechnological
Perspective withFDI 29
1.8 MNCs' ImpactuponNationalEconomiesandtheEU 33
1.9 ForeignDirectInvestmentintheTriadandEasternEurope 34
2. HUMANCAPITALACCUMULATION,GLOBALIZATIONANDGLOBAL
PRODUCTIVITYGROWfH 41
2.1 EmpiricalCharacteristicsoftheGlobalGrowthProcess 43
2.2 LocalCharacteristics,GlobalIntegrationandGrowth 52
2.3 HumanCapitalRequirementsforTechnologyUpgradinginaGlobal
Economy 57
2.4 UpgradingandChangeinCompetitivePositions 64
2.5 RegionalCompetitionandHumanCapitalAllocation 68
3. THEORETICALANDPRACTICALASPECTSOFHIGHTECHNOLOGY
POLICY 73
3.1 Endogenous GrowthTheoryandTheoryofHighTechnologyPolicies 75
3.2 TrendsinInternationalInnovationsandthePresenceofMNCs 78
3.3 InternationalTrendsinServiceIndustries 79
3.4 SkillRequirementsandTechnologyDynamics 82
3.5 TechnologyDynamics,Skills,andUnemployment 83
3.6 NewFirmsandSmallFirms:RoleforInnovationandStructuralChange88
3.7 LaborReallocation inDynamicMarkets 91
3.8 FirmsfromEasternEuropeandtheNICsasNewcomersinEurope 93
x
Globalization, EconomicGrowthandInnovationDynamics
3.9 GlobalizationandtheRisingImportanceofDiffusion 95
3.10Challenges forAchievingEfficientR&DPoliciesintheEU 96
4. EUROPEANR&DPOLICYFROMAGLOBALPERSPECTIVE 103
4.1 R&DPolicies intheEU,theUSandFarEastAsia 105
4.2 BasicResearchinanInterriationalComparativePerspective 113
4.3 LinksbetweenResearchandIndustry 115
4.4 PositionofEU Science-B~edIndustries 116
4.5 RequirementsforFutureR&DPolicies 118
4.6 SpecialRoleofSmallMNCs 118
5. THEFuTUREROLE OFR&D POLICY:POLICYOPTIONSAND
RECOMMENDATIONS 127
5.1 InnovationandInnovationPolicy 129
5.2 PolicyOptions 132
5.3 AdjustingGuidelines,PromotingCooperationandIncreasing
Transparency 133
5.4 EnvironmentalProblemsandGrowth:SomePolicyConclusions 134
5.5 FacilitatingNetworkBuilding 135
5.6 ExploitingCommunicationOpportunities 136
5.7 NewRolefortheEUinEducationPolicies 137
5.8 ImprovingPatentProtection 137
5.9 MobilizingEntrepreneurshipinUniversities 144
5.10Perspectives:GlobalizationandPoliticalInnovationinaDemocracy 145
ApPENDIXA: TABLESANDFIGURES 149
EXECUTIVESUMMARY 157
APPENDIXB:GLOBALIZATION,THEINFORMATIONSOCIETYAND
ECONOMICCATCHING-UPINTHEWORLDECONOMY
(Statement ofProfessor Welfensbefore theEIIWAnnual
Meeting, Potsdam, Dec.5,1997) 169
Endnotes 175
ListofTables 177
ListofFigures 179
References 181
