Science and Technology Policies in Developing and Transitions Countries: Reform and Technological Co-operation with Europe

Project Information

Grant agreement ID: SOE1951009

Start date 1 February 1996

End date 31 January 1998

Funded under

• Specific programme of targeted socio-economic research, 1994-1998

Total cost € 523 466,00

EU contribution € 523 466,00

Coordinated by

THE CHANCELLOR, MASTERS AND SCHOLARS OF THE UNIVERSITY OF OXFORD
United Kingdom

Exploitable results

Science and technology policies in developing and transitions countries: Reform and technological co-operation with Europe

The policy implications of the findings of the project include: - It is important for EU programmes to take a more positive and flexible stand on promoting domestic S&T. It would be helpful to launch programmes that specifically target such institutions and linkages. - Bureaucratic impediments to technology collaboration, especially at the enterprise level, need to be minimised, and the net must be cast wider so as to capture a larger range of potential technology actors. The EU should encourage countries to set up databases on technologically active firms and relevant institutions. It should promote its programmes more widely, explaining the procedures and benefits to potential participants. - One of the most valuable contributions that EU can make is to strengthen the MSTQ systems in the peripheral countries. This is already being done by means of direct contacts between institutions; however, a more systematic Community-wide programme of technical and financial assistance would be extremely useful. The objective should be to bring the relevant institutions to minimum levels of ‘best practice’ in terms of certification, testing, measuring and calibrating capabilities. - The EU should mount an initiative specifically to promote ISO 9000 in peripheral countries. There is a great deal to be learnt from measures undertaken in countries like the UK to encourage the spread of ISO 9000: the government subsidised up to half the cost of consultancy, with the result that the UK now has the largest number of ISO 9000 certified firms in the world. Each government is already aware of the importance of spreading the ISO systems through industry, but promotional efforts are not yet coherent and effective, and tend to neglect smaller enterprises. - The EU should help countries to launch and manage effective Foresight exercises to define their technological needs and establish spending priorities. - The most effective channel of technology transfer from the EU is direct investment by its companies. While this is a purely market-driven phenomenon in which European governments should not intervene, the EU can encourage the process of local technology diffusion by promoting subcontracting to host country firms and institutions, undertaking more research locally, and financing the training of manpower in advanced technological functions in their European operations. One possible model may by Singapore’s Local Industries Upgrading Programme (LIUP), where a lead MNC contributes a senior procurement executive to the programme, with the salary fully paid by the government, to help potential suppliers upgrade their capabilities to meet its input requirements. The EU could fund such a programme and send experienced company procurement personnel to work with SME suppliers. - At the more general levels, the EU can help technology development by promoting the technical and managerial education systems of peripheral countries. Finally, there is a wealth of experience and skills in domestic industrial technology promotion in Europe that can be extremely valuable for peripheral countries if a programme could be devised for transferring them at low cost to the host developing or transition country.

Trade patterns and technology flows in Greece, Turkey, Hungary and Mexico

This part analyses changes in the long-term trade patterns (1970-95) of Mexico, Greece, Turkey and Hungary to assess their evolution of technological capabilities, and the potential role of Greece, Turkey and Hungary in European integration. The aim is to point out the structural changes that are likely to have significant consequences for these three countries in the division of industrial activity in Europe. We use a ‘structuralist-evolutionary’ approach to development, with a central role assigned to dynamic efficiency, technical infrastructure and an efficient process of generation and diffusion of technology. A disaggregated analysis of the trade patterns of the four countries shows significant changes in the commodity composition of their trade as well as different patterns of evolution over time. Turkey had significant changes in its trade specialisation and composition up to the second half of the 1980s, mostly by expanding ‘traditional’ exports. In more recent years, however, a much less favourable trade performance has emerged, accompanied by stable trade specialisation and relatively stagnation in medium-high technology sectors. Greece shows relatively poor trade performance and few structural changes over the period. Its trade specialisation remains traditional, dominated by exports of raw materials and labour-intensive goods. Hungary has followed an intermediate course, changing and upgrading the composition of its trade in the first half of the 1990s, with significant progress recently in medium-high technology sectors. However, the results so far in terms of trade performance (export growth) have been disappointing. Mexico differs from the other three countries by the unique evolution of its specialisation patterns over the period. It was dominated by external shocks, which led to different phases of domestic adjustment with regard to trade and industrial restructuring. The general picture emerging from the analysis of trade patterns is not very positive for the three economies around the EU. The trade and production structures of Greece and Turkey remain backward, with only a slightly more positive structure for Hungary. In all three cases, comparative disadvantages continue to be concentrated in sectors with the highest technology content. These weaknesses may be a cause for concern in the context of their integration into the EU. In order to improve their position in the European division of labour and create endogenous sources of technological accumulation, ‘supply side’ upgrading will have a vital role to play. A major role can also be played by technology transfer resulting from closer integration and links with major enterprises in the EU. Various channels have been used to strengthen these connections. Among these, the role of FDI as a source of restructuring and technological changes has been rather limited up to the mid-1990s, with the exception of Hungary in recent years. However, local skills, infrastructures and institutions have to be upgraded to benefit from high-value EU FDI.

Access in foreign technology (by Greece, Turkey, Hungary and Mexico)

This chapter analyses the various forms of international technology inflows to the four sample countries in their process of development or transition to a fully-fledged market economy. The paper considers ‘internalised’ forms of technology transfer, such as foreign direct investments (FDI) and inter-firm alliances and co-operation, and ‘externalised’ forms such as licensing and ‘outward-processing trade’ (OPT) by Western European firms. Evidence is presented for each of these technology flows for the relevant periods, including liberalisation years as well as years of (incipient or consolidated) integration with the European Union (and the US for Mexico). The comparative analysis illustrates the wide variety of possible ways to acquire foreign technology, and the different requirements for a country’s industrial and technological development. Greece appears as an ‘early opener’ within the context of European integration, but it has not been very successful in attracting foreign investments. Moreover, FDI has persistently concentrated in activities with low technology, with no signs of structural change towards higher technology sectors. Licensing of foreign technologies has also been relatively limited, and the OPT arrangement cannot apply to Greece. This manifest inability to link with technologically dynamic foreign enterprises may be a crucial obstacle to the country’s technological upgrading and development. Mexico has received large foreign investment inflows for several decades, and is characterised by a broad variety of inter-firm relationships and alliances. However, the relationship with the EU is less important for the Mexican economy than that with the US, a tendency strengthened by the NAFTA agreement. The evidence on large foreign technology inflows is promising for the country’s industrial and technological development, but it remains to be seen the extent to which these flows will translate into effective deepening of local technological and industrial activities. Hungary has been the ‘late-opener’, but is now very welcoming to foreign investors. It has been one of the most successful countries in its region in attracting FDI, and the sectoral distribution shows a large presence of advanced activities such as machinery and equipment and chemicals. It has also used OPT arrangements intensively to link up with European firms and gain access to their technologies. Turkey opened earlier than Hungary, but FDI stayed at very low levels by international standards for many years. However, in recent years FDI has risen, and its sectoral pattern looks promising for the country’s technological development. The share of FDI in traditional products has fallen over time, whilst the share of science-based activities has increased; FDI in scale intensive products has stayed relatively high throughout the period (1975-95). Moreover, it is using OPT in textile and garments effectively to build up local production capabilities and raise local value added. In order to draw out the implications of the different patterns of access to foreign technologies, it is necessary to take into account the macroeconomic context, the S&T structure and industrial performance; this is done in the individual country studies.

Imports of machines and transfer of technology in Greece, Turkey, Hungary and Mexico

This chapter analyses how trade integration with more industrialised countries has affected technological choices, as measured by imports of machines (embodied technology), in the sample countries. This analysis represents the first attempt to use machinery imports as a measure of technology transfer. The first part of the paper spells out the main underlying hypotheses. The choice of technology is expected to be determined by two set of factors: relative prices and the overall level of technological capabilities and human capital in the importing country. Liberalisation and integration with more industrialised countries may affect this choice in two different ways: sample countries are expected to downgrade their technologies in order to exploit their existing comparative advantages in cheap labour; at the same time, the quality requirements of export markets may force them to upgrade their technologies within these labour-intensive activities. General data on total imports of machines at the aggregate level show broad trends in the upgrading of embodied technology; however, they show little about the technological levels involved. We therefore need to classify machines according to their technological complexity, and do so for the engineering and textile industries. In the case of textiles, we can also relate machinery imports to the exports of specific products. It appears that liberalisation affected technological choices in the sample countries in the expected directions. There was an upgrading of technology (represented by imported machinery) in industries where the countries had accumulated sufficient technological skills and exploited enough scale economies to have established genuine competitive advantages Otherwise, countries achieved export competitiveness by downgrading the quality of their products and moving towards simpler technologies. In a liberalised setting, the choice of technology is clearly driven to a large extent by the requirements of the export market. Hungary: In the aftermath of liberalisation, Hungary invested heavily in the engineering sector, where it had a long tradition and considerable accumulated capabilities. Its competitive strategy for the European market was to raise its capabilities, which it did by upgrading the technological content of imported machines. By contrast, in textiles, where its competitive edge lay in cheap labour, it downgraded its technology. Hungary completely changed its pattern of trade specialisation after liberalisation. It used to have a dual export structure, with traditional products sold in the industrialized world and technology-intensive products like motor vehicles sold to CMEA countries. Since liberalisation, when Europe became the main export market, traditional products were phased out, and efforts focused on the products that used to be sold to the CMEA. Such a strategy required a strong technological effort to upgrade the productive structure. Turkey has been able to strengthen its competitive position in the textile industry by gradually moving into more capital-intensive stages of production (e.g. from clothing to textile production) and by increasing automation in existing facilities, essential for it to preserve a competitive advantage. However, Turkey has been less successful in diversifying its export structure towards more technology intensive products. The skill intensity of the machines purchased by important non-traditional sectors like motor vehicles has been stagnant. Thus, although Turkey has improved its comparative advantage in industries like motor vehicles, it apparently has not done so by upgrading its technology. Greece is a disappointing case. Notwithstanding EU membership and higher per capita income than the other three sample countries, Greece has been downgrading its technologies throughout the period. In textile and clothing the situation appears particularly worrying. This is the major export item of the country, but Greece is losing competitiveness, as shown by ‘revealed comparative advantage’ indices since the early nineties. Despite its high labour costs, Greece is not upgrading its technologies. Imported machines have much lower skill content today than in 1988; and, in 1996, all other sample countries except for Hungary imported more skill intensive machines than Greece. In metalworking, Greece has been importing less technology-intensive machines throughout the period. Greek export performance is poor, and consistent with the lack of technological upgrading as manifested in machinery imports. It is difficult to analyse Mexico properly, since the EU data used cover only part of its imports. What the data show, however, is that Mexico has upgraded its technology in both industries. The upgrading of engineering technology is consistent with the reorientation of trade that followed the NAFTA agreement: the Mexican automobile industry is now highly export-oriented. Moreover, strict rules of origin have forced an increased process of vertical integration and thus new foreign investments in the country. Policy implications: Liberalisation does not automatically lead to technological upgrading. It takes time and accumulated experience before a developing country integrating with an industrialised one is able to improve its competitiveness through technology upgrading. Of course, moving to simpler technologies in the aftermath of liberalisation can be a desirable means to boost competitiveness, but this cannot remain the country’s long-term technological strategy. S&T policies have to be developed to facilitate the upgrading of the competitive structure, by reducing the costs of accumulating skills and undertaking technological activity. When countries already have a comparative advantage in more sophisticated industries (Hungary in metal working), policies should be targeted so as to strengthen this advantage and ease the interaction with firms and customers in their industrialised counterparts.