Knowledge, Science & Technology for

Development: A General Framework

and an Application to China
Carl J. Dahlman*
Columbia University
April 12, 2001
*World Bank Institute
The World Bank

Structure of Presentation

Knowledge and Development

Knowledge Revolution
Implications for Developing Countries
Challenges to Chinas Growth
Strategic Components for the
Knowledge-Based Economy in China
Implementation of the Strategy
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Knowledge makes the

Difference between Poverty
and Wealth...

Thousands of 1985
international dollars
8

Rep. of Korea
Difference
attributed to
knowledge

Ghana
0

Difference due to
physical and
human capital

1958 1962 1966 1970 1974 1978 1982 1986 1990

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The Knowledge Revolution

Increased Codification of Knowledge and Development of New
Technologies
Information processing, storage and transmission
Biotechnology and new materials

Closer Links with Science Base/Increased Rate of Innovation/Shorter

Product Life Cycles
Increased importance of education & up-skilling of labor force
Innovation and productivity increase more important in competitiveness &
GDP growth

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The Knowledge Revolution -2

Investment in Intangibles (R&D,education,
software) greater than Investments in plant and
equipment in OECD)
Increased Globalization and Competition
Trade/GDP from 38% in 1990 to 52% in 1999
Value added by TNCs 27% of global GDP

Bottom Line: Constant Change and Competition

Implies Need for Constant Restructuring and
Upgrading

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Implications for Developing

Countries
Risk of Knowledge Divide with Developed
countries and within countries
Need to develop strategies to use existing and
new knowledge to
Improve performance in traditional sectors
Exploit opportunities for leapfrogging
Develop competitive new sectors

Need to
Learn from other countries
Develop strategies for own situation and current
context

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Strategy of Using Knowledge

for Development

Strategy not just about high tech or Information

and communication tech.

Is about making effective use of knowledge

across economy and society

Requires better interaction between policies,

institutions, technology, people, and government

Is about getting knowledge to mothers, farmers,

workers, enterprises, and government to
improve lives

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Framework for Using K 4 D:

Four Key Functional Areas
Economic incentive and institutional
regime that provides incentives for the
efficient use of existing and new
knowledge and the flourishing of
entrepreneurship
Educated, creative and skilled people
Dynamic information infrastructure
Effective national innovation system
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Knowledge Assessment
Methodology: Country Scorecards
Benchmarking tool to help countries

assess how well they are positioned to

use knowledge for their development

Tool is flexible so that a country can

compare itself to its neighbors,

competitors or others it wishes to emulate

Helps to identify opportunities/challenges

and where countries may need to focus
policy attention or future investments

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Knowledge Assessment Matrix

KAM consists of 61 structural and qualitative
variables representing four pillars of the knowledge
economy, plus variables that show the overall
performance of economy
Sources: WDI, UNDP, WEF, IMD, etc.
Comparison is undertaken for 75 countries of which
(in income levels): low: 17; lower middle: 26; upper
middle: 15; high: 17
Interactive KAM:
http://www1.worldbank.org/gdln/kam.htm
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Data for the KAM: 61 variables

1
2.
3.
4.
5.
6.

Performance: 7 variables
Economic Incentive: 8 variables;
Institutional Regime: 7 variables
Human Resources: 14 variables
Innovation System: 12 variables
Information Infrastructure: 13
variables
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Score Card Indicators

As large set of variables is unwieldy, reduced score cards
with fifteen variables representing four pillars of the
knowledge economy, as well as performance

Chose variables for which data is widely available (WDI,

UNDP etc.)

Variables normalized with 10 for highest in sample of 75

countries, and 0 for lowest

Scorecards serve as a quick graphical way to compare

countries

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USA

Annual GDP grow th

Internet hosts 10
Human Development Index
Computers
Gross Domestic Investment
5
Telephones
Tariff & Nontariff Barriers
0
Tertiary Enrollment
Rule of Law
Secondary Enrollment
Adult literacy rate
High-Technology products

Control of Corruption
Foreign Direct Investment
R&D expenditures

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Brazil

Annual GDP grow th

Internet hosts 10
Hum an Developm ent Index
Com puters
Gross Dom estic Investm ent
5
Telephones
Tariff & Nontariff Barriers
Tertiary Enrollm ent
Secondary Enrollm ent
Adult literacy rate
High-Technology products

Rule of Law
Control of Corruption
Foreign Direct Investm ent
R&D expenditures

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China

Annual GDP grow th

Internet hosts 10
Human Development Index
Computers
Gross Domestic Investment
5
Telephones
Tariff & Nontarif f Barriers
Tertiary Enrollment
Secondary Enrollment
Adult literacy rate
High-Technology products

Rule of Law
Control of Corruption
Foreign Direct Investment
R&D expenditures

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India

Annual GDP grow th

Internet hosts 10
Human Development Index
Computers
Gross Domestic Investment
5
Telephones
Tariff & Nontariff Barriers
Tertiary Enrollment
Secondary Enrollment
Adult literacy rate
High-Technology products

Rule of Law
Control of Corruption
Foreign Direct Investment
R&D expenditures

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Total Population (1999)

100

US

Tertiary enrollment (net, %)

80

60
UK Germany
Russia

40

Japan

Philippines

Iran
Tailand
Egypt
Turkey
20
Iran
Mexico
Brazil
India
China Indonesia
Pakistan
Nigeria
0
Vietnam Bangladesh

5000

10000

15000
20000
25000
GDP per capita (PPP)

30000

35000

40000

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GDP (PPP, International Currency, 1998)

120

Tertiary enrollment (gross, %)

100
Canada
US

80
Australia
Korea
60
Italy
40

20
India
0
0

Russia

Spain
Argentina

South Africa
Turkey
Brazil
Mexico
China
Indonesia
5000

10000

France
Germany

UK

Japan

Taiwan

15000
20000
GDP per capita (PPP)

25000

30000

35000

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Human Development Index (1960-98)

0.9
0.8

Human
Development
Brazil

0.7

China

0.6
0.5

India

0.4
0.3
0.2
0.1
0

1960

1970

1980

1995

1998

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GNP Growth (Average, %)

%

12
10

China

8
India

6
4

Brazil

2
0
1967-75

1976-85

1986-95

1996-99

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Per Capita GDP (PPP)

Brazil

7,000
6,000
5,000
4,000

China

3,000
2,000
1,000

India

0
1975

1985

1995

1999

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Challenges to Chinas Growth

Sustaining high economic growth rates
Widening personal and regional income
disparities

Creating productive jobs in face of increasing

international competition

Growing environmental constraints

Making economic and political transition
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China's Overall International Competitiveness

(as ranked by IMD's World Competitiveness Yearbook)
1995

1996

1997

1998

1999

2000

10

20

30

31

26

27

24

29

31

40
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China's International Competitiveness in Selected

Areas (1) (ranked by the IMD)
1995 1996 1997 1998 1999 2000
0
10

2
12

20

2
9

14
20

23

30
40

Domestic Econ.
6
16
18

16
18

Government

29
34
38

37

36
40

Internationalizati
on

42

35
42

Finance

50
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China's International Competitiveness in

Selected Areas (2) (ranked by IMD)
1995

1996

1997

1998

1999

2000

Infrastructure

10

13

20
30
40
50

27
37
41
43

28
30
35
40

20

24

31
34

30

40

40

Management
25
27

28
29

36

37
42

42

Science &
Technology
People

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Trade to GDP Ratio (% )

%

50
45
40
35

China

30

India

25
20
15

Brazil

10
5
0
1965

1975

1985

1995

1999

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Exports (constant 1995 US$, bill)

14.8

252.1

20

62.4

11.5
0

1980

China

Brazil

49
1

1999

India

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100
90

China Manufacturing Exports

% of total exports

Other manuf.
goods

80
70
60

Machinery
and transport
equipment
Chemical
products

50
40
30
20
10
0
1975

1985

1990

1995
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High-tech Exports as % of Manufactured

Exports

16
14
12
10
8
6
4
2
0

China
Brazil

India

1992

1995

1998

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From Factor-Based to
Knowledge-Based Growth
China must increase the productivity of
capital and labor

This will require more than just focusing on

high technology industries

Need to increase productivity of all economic

activities

Need to create jobs to cope with wrenching

restructuring

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China

Annual GDP grow th

Internet hosts 10
Human Development Index
Computers
Gross Domestic Investment
5
Telephones
Tariff & Nontarif f Barriers
Tertiary Enrollment
Secondary Enrollment
Adult literacy rate
High-Technology products

Rule of Law
Control of Corruption
Foreign Direct Investment
R&D expenditures

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Updating the Economic and

Institutional Regime

Greater openness to international competition

Strengthening domestic competition
Restructuring/privatizing SOEs
Financial sector/corporate reform, including
strengthening of capital markets and development
of venture capital
Improving labor market flexibility
Increasing domestic competition
Strengthening rule of law
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Specific Issues in the Economic and

Institutional Regime
Dealing with risk of increasing inequality
Social safety nets
Growing regional inequality
Improving regulatory framework
Cleaning bureaucratic overload
Enforcement of technical regulations (product quality, safety...)
Strengthening intellectual property
Changing the Role of Government
from main producer to developing markets and institutions
providing key public goods good efficiently and dealing with

equity and social issues

increasing the revenue base to be able to finance the transition

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Developing Human Resources for

the KBE
Educated and skilled human resources = key
to success in the KBE

China still has a high illiteracy rate (25%

female, 9% male 1998), and very low tertiary
enrollment (6%, 1997)

Serious problems with access &quality

Challenge: making the best use of limited
resources to increase access and quality
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% 130
120
110
100
90
80
70
60
50
40
30
20
10
0

Secondary Enrollment

China

India
Brazil
1965

1975

1985

1995

1996

1997

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Total number of pupils by level of education (mill., 1997)

30
25

1.9

5.8

6.1

Tertiary
20
15

158.5

6.4

68.9

10
5

34.3

140

Secondary
*

110.4

Primary

0
0

Brazil

China

India

* Chinas secondary level includes both formal & informal education sectors.
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Tertiary Enrollment Rate (% )

%

20

Brazil

15

10

India
5

China
0

1965

1975

1985

1994

1996

1999

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Number of people with higher education (population aged 25 and

above, mill., 1989-94)
90
76.5

80
70
60
50
40
30

26.9

20

11.4

12

China

Russia

10
0
India

US

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Specific Human Resource Issues

Strong private demand for education not fully
tapped

Over-regulation: quotas, testing, content

Weak links between market needs and supply
Need massive re-training programs for displaced
workers

Serious internal and external brain drain

Make use of well developed distance education
network

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Ensuring a Dynamic Information

Infrastructure
A dynamic information infrastructure is critical
to take advantage of the knowledge and
information

China has made big strides

China can use an effective information
infrastructure to facilitate the industry
upgrading, to leapfrog and achieve
competitiveness and future success
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Telephone mainlines (per 1,000 people)

140
120
100
80
60
40
20
0

Brazil

China

India

1975

1985

1995

1999

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Mobile Phones (per 1,000) people

50
Brazil

40
30

China

20
10

India

0
1995

1996

1997

1998

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Personal Computers (per 1,000

people)
35
30
25
20
15
10
5
0

Brazil

China
India

1990

1993

1995

1998

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Internet Hosts (Per million people, Log)

3.5
3
Brazil

2.5
2

China

1.5
1
India

0.5
0
1995

1996

1997

1998

1999

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Specific Issues in the Information

Infrastructure
Deregulate telecom and allow private investment
and market competition at early stage

Expand access, reduce price, relax Internet control

Go beyond use of internet for communications to
information resource and using it as a tool to
reduce business, government and social
transaction costs

Will need legislation and regulation for electronic

commerce

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Improving the Innovation System

Three key components of Innovation System
Creating Knowledge
Tapping global knowledge
Disseminating and using knowledge
China is focusing primarily on
Developing high tech parks
R&D
Not enough effort on dissemination to increase productivity
agriculture
traditional and new industry
services

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R&D Spending: Largest LDCs

(1996 est.)
Country
S. Korea
Brazil
China
Russian Fed.
India
Poland

Amount in Millions
14,700
5,790
4,610
2,810
2,730
1,030
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Top R&D Performers in US

(1997 in millions)
Company
GM
Ford
IBM
Lucent
Hewlett-packard
Motorola

R&D Expenditures
8,200
6,327
4,307
3,101
3,078
2,748
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Royalty Receipts and Payments by

Country Groupings
(% out of $66 billion in 1999)
Country
Receipts %
Low Income
00.1
Lower Mdl Y
00.6
Higher Mdl Y
01.5
High Income
97.8
(US)
(55.5)
(J apan)
(12.5)

Payments%
00.6
03.7
09.4
85.8
(20.2)
(15.0)

(EU)

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Share World Technical Articles & Patent

Apls by Residents (1998)
100
90
80
70
60
50
40
30
20
10
0

Tech. Artl
Patent Apl

LY

LMY UMY

HY

US

Jpn

EU

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Total R&D Expenditure (PPP, 1996)

Scientists & Engineers (per million people)

6000

5000

Japan
Russia

4000

US

Australia
Denmark
3000

Germany

Canada
UK

2000
Poland
1000

Switzerland
Finland

France
Netherland

Korea

Austria

Spain
Italy

China
Turkey

Brazil

0
0

0.5

India

1.5

2.5

3.5

R&D expenditure as % of GNP

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Scientists & Engineers in R&D (Total)

419847

China

32512

26712

Brazil

94058

138421

1982

1995

India

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R&D Expenditure (US$, mill)

2570

2220
0

1988

4420

China

5310

Brazil

2270
1

1994

India

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Specific Issues in the Innovation System

Put massive efforts into dissemination by expanding:
Innovation sites (incubators)
Engineering research centers
Agricultural extension services and new Spark program
Improve links to global knowledge
FDI
Technology alliances, R&D collaboration
Partnering abroad
Improve internal efficiency of R&D effort
Balance among basic/applied/development/ acquisition
Maintain public good R&D efforts
Evaluation of effectiveness of R&D effort

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Disseminating Knowledge
Growth of more efficient enterprises
Sales (technical services, equipment, inputs)
Government agricultural and industrial
extension services, demonstration projects
Media, Technical Journals, Internet
Links between universities, research
institutes, and firms, people,

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Tapping into the

Global Knowledge Base
Trade, foreign direct investment,
technology licensing
Joint research/ business/ cooperation
Technical assistance, foreign study,
overseas nationals, hiring foreigners
Technical journals, databases, internet
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FDI Inflows (US$, Bill)

50
45

China

40
35
30

Brazil

25
20
15
10
5

India

0
1980

1985

1990

1995

1998

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FDI Inward Stock (Mill. US$, 1980 V. 1999)

30

6252

25

China

306003

20

17480

15

164105

Brazil

10

16416

1177

5
0
0

1980 1

1999

India

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Key Issues in Foreign Investment

China has tapped primarily FDI in
manufacturing, little still in service sector
other than hotels
Chinas service sector is very
underdeveloped
Opening up to FDI in services can help
improve productivity and develop sector
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70 Increasing Share of Service Employment

60
50
Brazil
40
30
India
20
10
China
0
1965
1975
1985
1990
1997
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Managing R&D Effort

Improve efficiency/relevance of existing R&D
government programs; encourage private effort
Link to the fast growing global knowledge system
cooperative international public research programs and
exchanges of researchers
strategic alliances, FDI, foreign research labs

Clearly justify rationale for public intervention

provide subsidies transparently
in a non-discriminatory manner
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Patents in the US

99

754

China

24

98

1022

Brazil

114

612

1980 1

2
1999

India

3
4
(Total
by1999)
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Using Knowledge
Effective use depends on perceived costs and
benefits of using it
Links back to economic incentive regime
Not just competitive pressures, but finance, rule of law

Also depends on education, skills, and other

absorptive capabilities of the persons,
organizations or firms
Therefore links back to education & broader
institutional issues.

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Annex: Standard 15-Variable

Score Card Indicators
Performance Indicators:
1.

Average Annual GDP growth 1990-98 (%)

(World Development Indicators (WDI), 2000)

2.

Human Development Index 1998

(index of literacy, life expectancy and income)
(Human Development Report 2000, UNDP)

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Score Card Indicators

Economic Incentive Regime:
3.

Gross Domestic Investment as % of GDP

(annual average growth, 1990-98) (SIMA)

4.

Tariff & Non-tariff Barriers

(composite of average tariff rate, non-tariff
barriers and corruption in customs services)
(Heritage Foundation, 2000)

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Score Card Indicators

Institutional Regime (Governance):
5.

Rule of Law (World Bank, 1999)

6.

Control of Corruption (World Bank, 1999)

These measures capture the respect of citizens

and the state for the rules that govern them.
(Kaufmann, Kraay, and Zoido-Lobaton).

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Score Card Indicators

Human Resources:
7.

Adult Literacy Rate 1998 (% age 15 and above)

(UNDP, 2000)

8.

Secondary Enrollment, 1997

(WDI, 2000)

9.

Tertiary Enrollment, 1997

(WDI, 2000)
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Score Card Indicators

Innovation System:
10.

FDI as % of GDP 1990-98

(SIMA)

11.

Total Expenditure for R&D as % of GNP 1987-97

(WDI, 2000)

12.

High Technology Exports as % of Manufactured

Exports 1998
(WDI, 2000)
Carl
Dahlman,
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Score Card Indicators

Information Infrastructure:
13.

Telephone per 1000 persons, 1998

(telephone mainlines + mobile phones)
(WDI, 2000)

14.

Computers per 1,000 persons, 1998

(WDI, 2000)

15.

Internet hosts per 10,000 persons, July 1999

(WDI, 2000)
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UK

Annual GDP grow th

Internet hosts 10
Human Development Index
Computers
Gross Domestic Investment
Telephones
Tertiary Enrollment
Secondary Enrollment
Adult literacy rate
High-Technology products

5
0

Tariff & Nontariff Barriers

Rule of Law
Control of Corruption
Foreign Direct Investment
R&D expenditures

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Korea

Annual GDP grow th

Internet hosts 10
Human Development Index
Computers
Gross Domestic Investment
5
Telephones
Tariff & Nontariff Barriers
0
Tertiary Enrollment
Rule of Law
Secondary Enrollment
Adult literacy rate
High-Technology products

Control of Corruption
Foreign Direct Investment
R&D expenditures

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