Industrial Development Report 2016

The Role of Technology and Innovation in Inclusive and Sustainable Industrial Development

United Nations Industrial Development Organization (UNIDO)

• Publisher: United Nations
• Year: 2015
• eBook ISBN: 9789213619421
• Topic: Politics & International Relations
• Subtopic: Development Economics
• Index: Politics & International Relations

This report looks at how technology and innovation achieves inclusive and sustainable industrial development (ISID). Its main finding is that ISID is feasible and technology can simultaneously serve all three dimensions of sustainability, including economic, social and environmental. Rapid inclusive and sustainable industrialization can happen more frequently provided that policymakers firmly steer the industrialization process with opportune policies and avoid past mistakes. In some cases, the spread of technology has not materialized in concrete growth opportunities because of the lack of technological capabilities. Innovation needs to be supported by interventions strengthening the process from invention to adoption, as capabilities are developed and high tech manufacturing sectors are created, seeing higher rates of sustainable growth.

Part A

The role of technology and innovation in inclusive and sustainable industrial development

Chapter 1

Moving towards inclusive and sustainable industrial development

Developing countries, especially at an early stage of industrialization, have more opportunities to pursue inclusive industrial development with a potential for rapid growth and limited environmental damage. The take-off of labour-intensive industries exporting to major world markets could boost both output and employment, thus promoting sustained and inclusive growth. And the limited output volume and concentration on less polluting activities tend to make manufacturing less damaging for the environment than they will become at a later stage.

As countries acquire skills and expand their infrastructure, the opportunities for growth and employment generation rise in other industries but usually proceed by drawing in increasing amounts of production factors, as well as natural resources and energy. Most industries at the middle-income stage are resource intensive and have relatively poor emission performance. So countries emerging from the low-income stage have good prospects for continuing the path of fast and inclusive development, but they start facing sustainability challenges.

Entry into the high-income group at a mature level of industrialization comes with structural and technological changes in manufacturing. High-income countries tend to have slower growth in manufacturing, except for high-tech industries, and experience a reduction in employment. At this stage, productivity is the main driver for growth across manufacturing industries, leading to output growth without much increase in inputs of capital, labour and materials. People employed in the manufacturing sector might receive a fairly high wage, but the sector is not expanding or often is shedding employment. So, the sector has limited opportunities for inclusive development in employment absorption, but it is more environmentally friendly.

Although employment prospects in manufacturing diminish as incomes grow beyond a certain level, high-tech industries could create a large number of manufacturing-related service jobs—with a wage often comparable to that in manufacturing—which could fully offset the reduction in manufacturing employment. Germany, for example, gradually reduced manufacturing employment for 10 years before the global financial crisis, but manufacturing-related service jobs increased over the same period, fully making up for the decline in manufacturing jobs (Figure 1.1).1

Unless countries make conscious efforts on all three fronts—sustained economic growth, social inclusiveness and environmental sustainability—and on managing the trade-offs among them, regardless of development stage they are not likely to make much progress towards inclusive and sustainable industrial development (ISID). The foremost challenge for low-income countries is sustaining the process of industrialization. For middle-income countries, it is environmental sustainability. And for deindustrializing, high-income countries, it is continued employment generation and inclusive industrial development. However, in different ways at different stages, skill development, technological change and innovation remain crucial for successful industrialization.

Pursuing rapid, long-run and stable growth

One dimension of sustainability is an economy’s ability to sustain growth over long periods without serious interruption. The longer the episodes of positive growth and the higher the rate of growth during positive growth episodes, the more likely a low- or middleincome country is to achieve sustained catch-up.2

The concept—in theory, open to all

Sustained growth has three characteristics: it is rapid, its episodes of growth are long and its volatility is low.

Average rates of gross domestic product (GDP) growth per capita. Is growth rapid enough to achieve substantial increases in welfare in the foreseeable future? And is it faster than in advanced economies so that a country can catch up? Since 1950, catch-up has required growth of more than 5 percent a year, sustained over two or more decades (Szirmai 2012a). Such success is rare (see Chapter 2).

“ Sustained growth is rapid, its episodes of growth are long and its volatility is low

Figure 1.1

Manufacturing-related employment in Germany, 1995–2008

Source: UNIDO elaboration based on World Input-Output Database (Timmer and others 2015).

Duration of growth episodes. The ability to sustain growth over long, uninterrupted periods is important, but often growth is not steady. And as Pritchett (1998) has argued, attempts to explain differences in average growth may be misleading—so it is more promising to find out what initiates or halts growth episodes or what influences their characteristics. The various types of growth episodes (slumps, recoveries, accelerations, plateaus) are the building blocks of the long-run growth process.3

Volatility of growth.4 The lower the volatility, the more sustainable the growth pattern. Volatility often is much higher in low- and middle-income countries than in high-income economies, and it is highest in countries caught in the “development trap.”5

The global reality—in practice, very few succeed

How do countries move up the development ladder?

The answer lies not in the creation of new knowledge but rather in the adoption and adaptation of knowledge from abroad. Poor countries tend to have high potential for rapid growth, residing in the repository of available global technological knowledge. But the evidence suggests that the ability to realize that potential varies greatly within the group of poorer countries (Figure 1.2). Within the large group of countries with a per capita GDP of less than, say, $15,000, growth rates show a large variance. The regression line shows a negative slope, indicating convergence (that is, poorer countries growing more rapidly), but it is a very weak relationship. The regression line also divides the group of poor countries into two subgroups: one, below the regression line, growing slowly and tending to fall behind or stagnate and one, above the line, showing some tendency for catch-up with richer countries.

Growth to last

Average rates of GDP per capita growth: Catching up and falling behind

Figure 1.3 shows the quintile distribution of GDP per capita for 154 countries, based on GDP per capita in 1990 international dollars, in logscale on the vertical axis. The blue lines indicate borders between quintiles of the distribution at each year. Hence, the bottom blue line is the minimum value, and the top blue line is the maximum value. The second blue line from the bottom marks the border between the lowest 20 percent values and the next group of 20 percent observations, and similarly for the other lines.

“ Poor countries tend to have high potential for rapid growth

Figure 1.2

GDP per capita and growth rate, 1998–2013

Note: GDP is gross domestic product.

Source: Kaltenberg and Verspagen (2015).

Figure 1.3

Quintile distribution of GDP per capita, 1950–2008

Note: GDP is gross domestic product; PPP is purchasing power parity.

Source: Kaltenberg and Verspagen (2015).

“ The world has been gradually becoming somewhat more equal, though the poorest countries remain an exception

The blue lines are interesting indications of trends at parts of the distribution. For example, the minimum and maximum values observed over roughly 50 years do not change much. More interesting than that, the observed growth rates at the various quintiles show significant variation. This is documented in greater precision in Table 1.1, which documents the growth rates for various periods at various positions of the distribution.

Over 1950–2008, the (rich) countries at the 80th percentile grew at 3 percent a year (Table 1.1). Each lower percentile shows consistently slower growth over this period: 2.4 percent at the 60th percentile, 2.1 percent at the 40th, and only 1 percent at the 20th. Thus, the distribution diverged over the period, with the top-ranking (rich) countries growing significantly faster than the poor countries, making the distribution wider (in relative terms). As a result, although the difference in GDP per capita among the countries at the 80th percentile steadily narrowed over the nearly six decades, it widened considerably among the countries in the bottom 40 percent of the GDP per capita distribution. So, although countries with a low GDP per capita in absolute terms (such as those with less than $3,000 GDP per capita in 1990 international dollars) generally had higher growth, countries that experienced faster growth among the low-income group had higher GDP per capita within each percentile at the start of the period.

This long trend is especially associated with 1950– 1980. Those 30 years show a magnified picture of the overall divergence, with the growth rate declining strongly at each percentile. The 1980s show a major break, with growth declining in the entire sample. Only the rich countries (80th percentile) managed to achieve some growth (close to 1 percent) during this decade.

The period 1990–1995 is skipped because trends during those years are strongly influenced by the transition from 132 to 151 countries.6 After 1995, there is much more convergence, especially during 2000–2008. During 1995–2008, the 40th and 60th percentiles grew roughly as fast as the 80th percentile, and during 2000–2008, those two percentiles outperformed the 80th percentile by about 0.5 percentage points a year. But the 20th percentile continues to grow slowly—about as slowly as before 1980. In short, since the mid-1990s, the world has been gradually becoming somewhat more equal (on the distribution of living standards among countries), though the poorest countries remain an exception.

How about the growth experiences of individual countries? To summarize them, look at countries that move upward in the distr...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Foreword
• Acknowledgements
• Technical notes and abbreviations
• Glossary
• Executive summary
• Part A The role of technology and innovation in inclusive and sustainable industrial development
• Part B Trends in manufacturing valued added, manufactured exports and industrial competitiveness