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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.

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Sanjaya LALL
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Evaluation - Policies