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Technology is still, and will be, the leading driving force of the future global economy, despite the dotcom crash, a group of analysts said Wednesday in Hong Kong.
Technology is still, and will be, the leading driving force of the future global economy, despite the dotcom crash, a group of analysts said Wednesday in Hong Kong. Post-dotcom crash, the technology sector is rebounding, and to be sure, the savvy investors never had any doubts, Rich Karlgaard,publisher for Forbes Magazine, said at the Forbes Global CEO Conference in Hong Kong. There is no question that technology, particularly information technology, has driven the success of the global economy over the last 15 years, Karlgaard said, adding that starting from two yearsago it came to a sudden halt and now telecommunications and information technology are sicken in the global economy. In response to Karlgaard's comments, George Gilder, chairman ofthe US-based Gilder Publishing, said, "Everything has been said about the technology setbacks in the United States is deeply wrong,but what we have seen is the greatest infrastructure buildup in the history of the world economy." Speaking of the role of technology in the global economy, Gilder said, starting from 1996, the global telecommunications industry has witnessed a rise of 9,000 fold in internet traffic, with a traffic growth rate of 10 percent in the past seven years. According to Gilder, the world communications infrastructure was completely transformed, and a trillion dollar telecom revenue was created over the past seven years.
especially sophisticated information and communications technologies. 100 fold of that kind of wealth creation we have seen in the past. and is becoming more apparent in the goods and services market. said Gilder." he said. has rendered possible what has been termed as globalization of the economy. http://english. more than 10 times the United States does. The acute deflation beginning in the United States in 1996." The concept of internet is also real. Strategic . video traffic and video teleconferencing. the Chinese people will lead the world economy to a new era of growth prosperity."With the continuing growth of telecommunications traffic. He saidsince China produces 700.peopledaily. Glenn1 Abstract The surge of new technologies. "We can never image the potential of new technologies in the development of global economy. Gilder said "the New Economy was real and is going to manifest itself in the future.shtml Patricia A.com. we are going to see in the coming 10 year from now that another tremendous creation. The information technology industry is increasingly characterized by globalization. which triggered the Asian economic crisis and is still working itsway through economy in Hong Kong today.cn/200209/26/eng20020926_10391 9. There is increasing cooperation between and interlinkages among firms so that R&D. servicing and production are spreading around the world. or even technoglobalism. who is also a famous analyst on global economy in the United States. at least. This phenomenon is evident in the financial markets. is going to be surmounted with technological development." Gilder added.000 engineers every year. The analyst noted that technology is made by engineers. dominated by voice traffic.
Production and marketing agreements enable companies to make use of their partner's distribution system and knowledge of local markets.S. Companies competing in the international market are taking advantage of operating at a global level and benefiting from market scales and the diversity of consumer and production factors.springerlink. Companies. the last decade and a half has seen a resurgence of research on why incomes rise over time.com/content/uu2630p717424824/ Technology and the Global Economy Jonathan Eaton* Since at least the eighteenth century. and why some countries are . Accumulation of physical capital provided a simple and natural explanation. http://www. But Robert Solow's fundamental work in t he late 1950s showed that capital accumulation could account for less than half of the growth in U. These include. a good part of the world has experienced ongoing gains in the standard of living. Solow suggested that ongoing improvements in technology might tell the rest of the story. large and small. are open to partnering with other companies and organizations. international competition. but are not limited to: infrastructure. intellectual property and standards. income per capita. While subsequent work refined Solow's analysi s. it did little to upset the basic conclusion that capital accumulation provides a very incomplete explanation for why countries grow. location. Globalization is a fact. While interest in growth waned in the 1970s. a process Simon Kuznets has labeled "Modern Economic Growth.alliances are today's business tools. brought about by globalization give rise to crucial policy and management issues. The changes in organization and structure. physical and intangible investments. R&D partnerships play an important role in enhancing competition through pooling skills and resources to achieve technological excellence." Economists have long sought to understand the forces behind this phenomenon.
however. but they are also at the heart of any evaluation of the myriad government policies that affect innovation. At the heart of the problem is measurement. There are now a number of elegant theories of how technological progress drives growth. A number of basic questions. much harder. on their own innovations. and 4) assessing the role of trade in di sseminating the benefits of technological advances between countries. Our research so far has pursued four broad sets of issues: 1) quantifying the contributions of innovation and diffusion to world growth.richer than others. and how are they shared across countries? Does a country recover the costs of giving research expenditures favorable tax treatment. patenting. do these gains spread through the exchange of products embodying these innovations. or through the diffusion of the ideas themselves? The answers to these questions are of intrinsic interest. We look not only at productivity across countries and over time. Kortum and I are engaged in a research project that attempts to shed light on these issues. ways to measure resources diverted from other uses toward investment in capital. or are the benefits largely dissipated through the diffusion of innovations abroad? What are the gains from coordinating research policies internationally? To what extent does greater openness spread the benefits of technical progress? Samuel S. and assessing how polices affect growth. We don't observe people coming up with new ideas. We take this theoretical f ramework to a number of sources of data. 3) analyzing the effects of national technology policies in an international context. 2) explaining differences in research effort across countries. for the most part. and we can't systematically trace how these ideas shape the process of production over time and space. and how these innovations raise income levels around the world. but usable. and bilateral trade. I discuss our results on . Our framework builds on recent advances in growth theory and trade theory. For instance: What are the benefits and costs of tougher patent protection. Solow made the job of quantifying the sources of growth. We can also gauge (much more roughly) how much capital is on hand. Such measures give us some handle on capital's contribution to growth over time and to differences in incomes across countries. and where are these innovations most rapidly put into practice? To the extent that the benefits of innovation seep across borders. But technology presents the empirical economist with a much more elusive concept. But in turning the spotlight to technology rather than to investment. hinge on understanding how innovations occur. For example: Do countries rely. or are the gains from innovation largely shared? Where does most innovation occur. we also use data on research effort. We have imperfect. education.
Countries differ much more systematically in their relative inc ome levels than in their growth rates. For this purpose we've turned to data on international patenting. Even trickier to determine is inferring whose innovations countries are tapping. World Growth and the International Diffusion of Technology A series of papers has sought to trace productivity improvements in different countries to the countries that generated the innovations behind them. Such data include research expenditure (private or overall) and research scientists and engineers (private sector or overall). not very closely. Hence research activity is quite concentrated. Over the past two decades. both absolutely and relative to size. Standard measures can thus give us some insight into who is benefiting from innovations and who is doing research fairly straightforwardly. but they also devote a larger fraction of their resources toward R&D than any but a handful of small. This observation is consistent with a world in which countries draw on a common pool of inventions. but Germany does about twice as much research. Whichever number one looks at. 1 Because they do nearly all of the world's research. and Japan. We use output per worker as a measure of the extent to which countries make use of innovations. though technically advanced. but a number of countries that do relatively little research enjoy high levels of productivity. the message is that most research is performed in just three countries: the United States.) Not only do these countries devote more resources toward R&D in absolute terms. (France and the United Kingdom follow. maintaining fairly stable relative productivity levels. It also suggests that not a great deal can be learned about growth by relating the growth rates of different countries to various characteristics. by most measures. countries such as Sweden and Switzerland. Germany. We turn to various measures of research effort to try to get some handle on where innovative activity occurs. OECD countries have tended to grow at very similar rates. productivity levels in France and Germany are very similar. behind. or else implementing them more quickly. Such observations suggest that a large number of countries make use of innovations from a small number that concentrate on research. and then turn to work-in-progress. .each category. with more productive countries taking advantage of more of these i deas. we focus on countries that are members of the Organization for Economic Cooperation and Development (OECD). For example.
Among other things. higher costs of patenting (application fees. Applying for a patent is costly. Of course other factors would affect the decision as well.A feature of the international patenting system is that an i nventor. and Germany are overwhelmingly the major . in Canada. A French inventor would have little reason to apply for a patent in Japan unless he or she thought it had a good shot at being used there sooner or later. The data themselves provide a lot of insight about what is going on. for similar reasons. Inferring the extent of technology diffusion from the patenting data requires taking these other factors into account. For this purpose we use a multicountry model of innovation and diffusion that incorporates these phenomena. Japan. for example. A key goal is to assess the contribution that different countries are making to growth around the world. translation costs. is likely to expect that the invention has some chance of being used there. West Germany beats out Japan. Hence an inventor." to the countries whose innovations drive it. its "Solow residual. The United States. What we learn is that the United States. in order to obtain patent protection in any particular country. after the United States. for example. larger countries are much more popular destinations for patent applications. countries that put the most resources into inventive activity do in fact patent most broadly. Third. Fifth. such as the cost of patenting in Japan . (Patenting in Japan is particularly expensive for foreigners. But getting a more precise picture of how innovation and diffusion drive world growth requires embedding these data into a framework that accounts for how markets allocate resources between current production and innovation. But in many European countrie s. and the quality of protection that the Japanese patent system provides a French inventor. Observing. is the largest foreign patenter in the United States and. our approach allocates technical progress in each country. and legal fees) tend to deter patenting. and how innovators decide where to patent their inventions.) Fourth. and most inventions are patented in only one country. Second. inventors are more likely to take out patents in nearby countries rather than ones far away from their own. has to take out a patent there. the number of patents that French inventors take out in Japan might tell us something about how much technology is flowing from France to Jap an. and Germany dominate patenting by foreigners in other OECD countries. What patterns in international patenting do we observe? First. Japan. in deciding to patent an invention in a parti cular country. Japan. inventors are more likely to patent an invention at home than anywhere else. the size of the market there. suggesting that inventors do in fact find the bother of applying for a patent much more worthwhile when the market in which they are seeking protection is large.
it may take a while for someone to figure out how to copy it. Innovations appear to be about two-thirds as potent abroad as they are at home. in all industries. and enforcing the patent can be costly. What Policy Can Do Since patenting is a major component of our empirical analysis. however. and pharmaceuticals are research-intensive. of course.sources of innovation in the world economy: More than half the growth of the countries we consider derives from innovations from these three countries. for example. Imitation is often hard to detect. Moreover.2 One possibility is that these differences reflect specialization in more or less research-intensive goods. We find. that countries that do a lot of research tend to do it across the board. our results indicate that the current patent system provides only modest protection from imitation. firms in these countries turn to other activities. might do a lot of research because of its large pharmaceutical industry. It may be that some countries are simply better at doing research than others. patents eventually expire. On the other hand. . even if an idea is not patented. This explanation holds water. and I adapt our framework to evaluate alternative explanations for cross-country differences in research effort. Kortum. Why Some Countries Do Much More Research than Others On average. it is not complete. We find that the second explanation seems to have much more to d o with why many smaller European countries do so little research. a natural question is what patent protection contributes to innovation and growth. Hence cross-country differences in research effort seems to say more about differences in the countries themselves than in the goods that they produce. Switzerland. not only in absolute terms but also relative to their size and resources. While the extent of international dif fusion is substantial. Eva Gutierrez. In fact. countries within Europe vary enormously in the share of resources they devote toward research and in terms of how much patenting they do at home and abroad. On the one hand. and even an active patent does not provide an ironclad guarantee that an idea won't be stolen. only if research needs to be done where the inventions are used. Because of their small size and the difficulty of appropriating returns to inventions abroad. or else that some countries provide greater rewards to doing research. and each country makes its greatest contribution to growth at home. countries in Europe do less research than the United States or Japan.
Gutierrez. Indeed. There are consequently ma ny reasons to think that countries might benefit from coordinating and harmonizing technology policy. At the same time. since inputs tend to be much cheaper there. Kortum and I extend our framework to analyze bilateral trade in manufactures among a sample of OECD countries. that a drop in transport costs from their current levels will tend to shift manufacturing from Germany to Denmark. When transport costs are very high. But the Ricardian model has resisted generalization to many countries and the incorporation of trade barriers -. As transport costs fall. for example. and I consider various aspects of technology policy in Europe. It turns out. Technology and Trade To what extent does trade bring the fruits of technological progress to foreign shores? The idea that trade has an explanation in technology has its origins with David Ricardo. that in our model of innovatio n these extensions are quite straightforward. since the second country will then f ind its relative isolation less of a . Many policies that would benefit Europe as a whole generate such large cross-border externalities that they are not worthwhile at the national level. we examine how the competing forces of technology and geography shape production and trade patterns in manufacturing. however. 3 Among other things. national policies have global effects. a patent s ystem that provides much tougher protection than the current one could do much to stimulate growth. we find that eliminating patent protection entirely would reduce world incomes by fairly small amounts.These difficulties are especially formidable for patents held abroad. Kortum. But as long as ideas cross borders. We find. We find that there is enormous scope for free riding.two extensions needed for any serious empirical analysis. We estimate. Most policies toward technology are pursued nationally. for example. countries with large internal markets tend to attract manufacturing. The reason is that non -EU countries benefit from the stimulus to research but do not have to bear the cost of the more pervasive monopoly power that tougher protection entails. that tougher patent protection within the European Union (EU) would raise incomes everywhere. large countries lose their edge to countries with better technology for producing manufactures regardless of their size. but the increase outside the EU is even greater. Our results suggest that the payoff to providing European inventors a common market for their ideas is potentially quite large.
Finally. These completed and ongoing projects all involve linking economic theory to data about the world economy.S. We can relate. A goal here is to understand the connection between factors that affect trade at the aggregate level and what happens to individual plants. to what extent can trade spread the benefits of technological progress through the exchange of goods embodying innovations? We find that barriers are too high for trade to serve as the major conduit for the spread of new technology except. Right now we are exploring three fronts. firms and establishments. A common goal is to provide a clearer quantitative picture of the role of technology in the global economy. It turns out that our methodology provides a simple way to link aggregate with plant -level data. A second project seeks to complete the link between our model of innovation and international trade: we explore the extent to which openness to trade fosters innovation and growth. trade barriers keep countries much closer to a world of autarky than a world in which manufactured goods could be moved costlessly across borders. in some cases. which focuses on aggregate measures of trade and innovation. with their work on the productivity and export beha vior of individual U. but we regard it in large part as a platform from which to launch investigations of many additional questions. . Kortum and I have teamed up with Andrew Bernard and Brad Jensen to connect our work. One project is to examine the technology and trade issues that we have raised here at a sectoral level. We also consider the classic question of the gains from trade in manufactures among our sample of countries. A dramatic finding is the extent to which they remain unexploited. rather than through the export of goods embodying them. to small countries very near the source of innovation. The results suggest that the benefits of innovation spread primarily through the transmission of the ideas themselves. the implications of greater openness for plant closings and for the fraction of remaining plants that export.handicap. At their current levels. for example. A particular question is the extent to which countries carve out a comparative advantage in particular manufacturing activities through research efforts. Given the size of current trade barriers. What's Next Our work on the topics discussed so far is largely complete.
" Economic Policy. J." International Economic Review forthcoming (originally published as "International Patenting and Technology Diffusion. pp." NBER Working Paper No.End Notes J. E.html . "International Technology Diffusion. "European Technology Policy.4931. Gutierrez. Eaton and S. Kortum. Geography. 27 (October 1998). 40 (May 1996)." Japan and the World Economy. Eaton and S. 6253. November 1994). pp. J. 235-59. "Technology.nber. "Trade in Ideas: Patenting and Productivity in the OECD. J. Kortum.org/reporter/summer99/eaton. Eaton and S. Kortum." NBER Working Paper No." Journal of International Economics. Eaton. November 1997). and Trade" (originally published as "Technology and Bilateral Trade. "Engines of Growth in the World Economy. and S. 3 2 1 http://www. 405-38. 251-78. pp. Kortum. J. Eaton and S. (1997). Kortum.
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