Innovation in Latin America: Diagnosis

and Questions

William F. Maloney
World Bank

Mexico, DF, July 2010

 Engineers in North America
~1900

Bottom quintile
Quintile 2
Quintile 3
Quintile 4
Top quintile

Source: Maloney and Valencia (2010)

Throughout LA, there was a lack of
national innovative capacity
Engineers and GDP/Capita ~1900
200
US N
180
workersworkers

160
in 1900

140
USA
100,000

120
100,000

100
GER
GRB
perpereach

SWE CAN
80

60 US S
Engineers

FRA
Engineers

AUS
40
PRT ITA
ARG
20 VEN
BRA MEX ESP
PER COL CHL
0
0 1000 2000 3000 4000 5000 6000

GDP/Capita
GDP (US$
per capita in 1900 (1990~1990)
U$ dollars)

Source: Maloney and Valencia (2010)

 Half of the GDP difference is
represented by Total Factor Productivity
(TFP)
Productivity Growth
1. 5

0. 5

r o wt h

-0. 5
Latin America OECD East Asia

-1

-1. 5

-2
1970s 1980s 1990s

Source: Calderón, Fajnzylber and Loayza (2002)

Innovation Diagnoses: 3 Big
Questions
 1. Do we have an innovation problem or
another distortion?
The TFP is a measure of our ignorance, nothing more
Allocation of production factors
Micro rigidities that prevent the entry of more productive
companies?
Haltiwanger– poor allocation could reduce the EU's GDP by
EU 40%
Hsieh and Klenow (2007) India and Chile 35-60% more
productive with a good allocation
Allocation within the company (labor markets?)
Chile– new restrictions cost .5% in annual growth
Technological progress (innovation): knowledge
accumulation.
2. Is it a question of knowledge
accumulation or of accumulation in general?
R&D and K/L
5
4.5
4
3.5
R 3
& 2.5
D 2
1.5
1
0.5
0
0 1 2 3 4
K/L

Source: Rodriguez and Maloney (2005)

 Returns on R&D vs. Distance to the Frontier:
Complementary factors are key
Poor countries: low Advanced:
complementarity innovative

Distance to the technological frontier

Medium income:
imitator/innovative
Distance to the economic frontier (z)

Source: Goñi, Lederman and Maloney (2008)

 3. What kind of innovation is required?
5.0
2
R&D GDP  GDP  Israel
4.5  1  2  
GDP CAP  CAP 

4.0

Finlandia
Predicted and Observed R&D/GDP (%)

3.5

3.0

2.5

2.0
Corea del
Sur
1.5
China
1.0
Brasil
India Chile
0.5 LAC-5 España

México Argentina
0.0
4 5 6 7 8 9 10 11
Log GDP per Capita
Source: Goñi, Lederman and Maloney (2008)
We should look at the PRODUCTIVITY
system as a whole
We should place innovation in the context of
accumulation in general with the company at the
center
Financial markets? Entrepreneurship? Marketing? Other
barriers?
 Kiwis– how to leave the island
Without this, there is a risk that increasing the C&T
would be "pushing on a thread"
 Innovation System Structure
Innovation Supply Accumulation Demand
Universities/ /Allocation
Research centers/ K
The company
A
Technology
extension Barriers for
accumulation/allocation
•Human capital •Financing •Macro Framework
•Quality systems •Entry/Exit barriers •Competitive Structure
•Dissemination of best •Regulatory/investment climate
•Trade Regime
practices/processes
Barriers to knowledge •International Trade
•Science and technology
system accumulation •Entrepreneurial Spirit
•International links •Market failures (&IP)
•Venture capital (VC)
•Restrictions (employment, etc.)
How do we know if the system is
working?
The raw material of innovation:
Education Performance
550 HongKong,China Finland
Netherlands
Japan
M acao-China AustraliaBelgium Switzerland
New Zealand
Czech Rep ublic Iceland Denmark
France Sweden
Ireland Austria
Math Score (Mean)tests
Germany
500 Slovak Republic
Hungary Norway
Poland
Sp ain Latvia
United States
mathematics

Portugal Italy

450
Greece

Turkey
Uruguay
Thailand
2003 PISA

400
Standardized

Argentina Mexico
Chile

Indonesia Tunisia
Brazil
350

300
0 5 10 15 20 25 30 35 40

Education Expenditure
2001 Expenditure / Per
per student, primary (%capita GDP
of GDP per capita)
New Measurements of Management Quality

US
Germany
Sweden
Japan
Canada
France
Italy
Great Britain
Australia
Northern Ireland
Poland
Republic of Ireland
Portugal
Brazil
India
China
Greece

2.6 2.8 3 3.2 3.4

mean of management
Source: Bloom & Van Reenen (2009) – Definition: “Average country management score, (monitoring, targets and
incentives management scored on a 1 to 5 scale)”
 The efficiency of generating knowledge is low
in LA
Patents = B1R&D + Bp
20.00%
Country*R&D

15.00%

10.00%

5.00%

0.00%
MEX

VEN
PER

FIN
URY

TWN

KOR
ARG

CRI
CHL

NOR
BRA

ISR
COL

-5.00%

-10.00%

Source: Bosch, Lederman and Maloney (2009)

University/Business Cooperation is low...
(business interviews - rating from 1 to 7)

7.0

6.5

6.0

5.5

5.0

4.5

4.0

3.5

3.0

2.5

2.0
Arg Bra Chi Col CR Mex Chn Esp Cor Ind Irl Aus Sw e Isr Fin EUA

Calidad
QualitydeofInst. Cientificas
scientific inst. Colab.
Coop.Uni/Empresas
Univ/Business
 ...And the Links between University/Global
Knowledge Centers are Weak
StudentsAbroad
Students studyingper
in the US / Tertiary
Million TertiaryStudents
Enrolled

1800
1600
1400
1200
1000
800
600
400
200
0
ol m
d
il

an
lia

Ze ile

M a
Vi na

M dia
ico

a
Ta a

a
az

an

bi

si

ad
re
na
ra

ew Ch

iw
i

ay
ex
om
Ch

In
Br

Ko
al

an
st

et

al
Au

C
C
N

Source: Maloney (2009)

 END

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