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Adopt, Adapt, Advance: Innovating for the Future

ERBD wishes to acknowledge

Flagship Forum Partner

Major Forum Partners

Special Event Partner

Forum Partners

3

54

32

1

The Panel

12 4

5

1.Hakan Ayen

2.Beata Javorcik

3.Ralph de Haas

4.George Chirakadze

5.Albert Bravo-Biosca

TEXTTEXT

TRANSITIONREPORT2014

tr.ebrd.com

Produced by the Office of the Chief Economist, EBRD.

© European Bank for Reconstruction and Development

Adopt, Adapt, Advance: Innovating for

the Future

Background: Economic convergence is

slowing down

Sources: IMF WEO, EBRD REP, weighted averages.

5

-4

-2

0

2

4

6

8

10

12

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

Re

al

GD

P g

row

th i

n e

xce

ss o

f A

dv.

Ec.

, p

er

cen

t

Emerging markets relative to

advanced economies

CESEE region relative to advanced

economies

-4

-2

0

2

4

6

8

10

12

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

Re

al

GD

P g

row

th i

n e

xce

ss o

f A

dv.

Ec.

, p

er

cen

t

Emerging markets relative to

advanced economies

CESEE region relative to advanced

economies

Georgia relative to advanced

economies

Share of firms

Share of firms

Share of firms

Share of firms

ProductivityProductivityProductivityProductivity

Transition regionTransition regionTransition regionTransition region

IsraelIsraelIsraelIsrael

6

Firms need to become more productive

• Some firms are as productive as leaders in advanced markets…

• …but laggards must adopt and adapt – or die – to raise aggregate

productivity and get countries unstuck

Adopt, Adapt, Advance: Picking the low-hanging fruit

Innovation is about improving productivity within firms

Innovation goes well beyond R&D in high-tech sectors

Products and production processes new to the firm

Firms Adopt, Adapt and Advance towards technological frontier

7

8

Who innovates the most?

Growth 1993-2010

9

Exporters

Source: : BEEPS V, MENA ES

Growth 1993-2010

% o

f fi

rms

tha

t in

no

va

te

10

Firms in global value chains

Source: : BEEPS V, MENA ES

Growth 1993-2010

Hig

he

r li

ke

lih

oo

d o

f in

no

va

tio

n

(GV

C v

s. n

on

-GV

C f

irm

s)

Firms with access to credit

0%

5%

10%

15%

20%

Product innovation Process innovation

Percentage of firms that innovate

Percentage of firms that innovate

Percentage of firms that innovate

Percentage of firms that innovate

No credit demandNo credit demandNo credit demandNo credit demand Unfulfilled credit demandUnfulfilled credit demandUnfulfilled credit demandUnfulfilled credit demand Fulfilled credit demandFulfilled credit demandFulfilled credit demandFulfilled credit demand

0%

5%

10%

15%

20%

Product innovation Process innovation

Percentage of firms that innovate

Percentage of firms that innovate

Percentage of firms that innovate

Percentage of firms that innovate

No credit demandNo credit demandNo credit demandNo credit demand Unfulfilled credit demandUnfulfilled credit demandUnfulfilled credit demandUnfulfilled credit demand Fulfilled credit demandFulfilled credit demandFulfilled credit demandFulfilled credit demand

11

12

Who should innovate

more (or perhaps less)?

Growth 1993-2010

0

50

100

150

200

250

Higher-tech sectors Medium-low-tech sectors Low-tech sectors

Percentage increase in labour productivity

Percentage increase in labour productivity

Percentage increase in labour productivity

Percentage increase in labour productivity

Percentage of firm

s that innovate

Percentage of firm

s that innovate

Percentage of firm

s that innovate

Percentage of firm

s that innovate

Percentage of firms engaged in product innovationPercentage of firms engaged in product innovationPercentage of firms engaged in product innovationPercentage of firms engaged in product innovation Impact of product innovation on productivityImpact of product innovation on productivityImpact of product innovation on productivityImpact of product innovation on productivity

0

50

100

150

200

250

Higher-tech sectors Medium-low-tech sectors Low-tech sectors

0

5

10

15

20

25

30

Percentage increase in labour productivity

Percentage increase in labour productivity

Percentage increase in labour productivity

Percentage increase in labour productivity

Percentage of firm

s that innovate

Percentage of firm

s that innovate

Percentage of firm

s that innovate

Percentage of firm

s that innovate

Percentage of firms engaged in product innovationPercentage of firms engaged in product innovationPercentage of firms engaged in product innovationPercentage of firms engaged in product innovation Impact of product innovation on productivityImpact of product innovation on productivityImpact of product innovation on productivityImpact of product innovation on productivity

Pay-off from innovation highest in low-tech industries

13

14

Less advanced countries: Management matters most?

Source: BEEPS V, MENA ES

Growth 1993-2010

Incr

ea

se in

pro

du

ctiv

ity

, %

Management needs to be improved before new processes can yield substantial productivity gains

Incr

ea

se in

pro

du

ctiv

ity

, %

3

54

32

1

The Panel

12 4

5

1.Hakan Ayen

2.Beata Javorcik

3.Ralph de Haas

4.George Chirakadze

5.Albert Bravo-Biosca

Harnessing FDIfor Economic Growth

Beata JavorcikUniversity of Oxford

What are the essential ingredients for fast and sustained economic growth?

OpennessImport

knowledgeExploit global

demandMacroeconomic

stabilityModest inflation

Sustainable public finances

Long-term focus

High savings

Market allocation

Prices guide resources

Leadership and governance

Credible commitment to growth

Credible commitment to inclusion

Capable administration

Multinational firms (MNCs) are creators of knowledge

� MNCs are responsible for most of the world’s R&D

� 700 multinational corporations accounted for 46% of the world’s total R&D expenditure and 69% of the world’s business R&D in 2002 (UNCTAD 2005)

MNCs’ R&D budgets may exceed R&D spending of countries (2002, $bn)

Knowledge brought by MNCs boosts the performance of FDI recipients

Total factor productivity (in logs)

Pre-acquisition

Year

Acquisition

yearOne year later Two years later

FDI recipients 0.864 1.079 1.142 1.215

Control group 0.867 0.976 1.022 1.083

Difference 0.106*** 0.122*** 0.135***

(0.034) (0.045) (0.051)

Knowledge brought by MNCs boosts the performance of FDI recipients

Total factor productivity (in logs)

Pre-acquisition

Year

Acquisition

yearOne year later Two years later

FDI recipients 0.864 1.079 1.142 1.215

Control group 0.867 0.976 1.022 1.083

Difference 0.106*** 0.122*** 0.135***

(0.034) (0.045) (0.051)

Knowledge brought by MNCs boosts the performance of FDI recipients

Total factor productivity (in logs)

Pre-acquisition

Year

Acquisition

yearOne year later Two years later

FDI recipients 0.864 1.079 1.142 1.215

Control group 0.867 0.976 1.022 1.083

Difference 0.106*** 0.122*** 0.135***

(0.034) (0.045) (0.051)

Foreign ownership leads to rapid changes

(d) Employment

5.40

5.60

5.80

6.00

t-1 t0 t+1 t+2

(e) Average wage

7.60

7.80

8.00

8.20

8.40

8.60

8.80

9.00

t-1 t0 t+1 t+2

(c) Output

10.00

10.20

10.40

10.60

10.80

11.00

11.20

11.40

t-1 t0 t+1 t+2

Foreign ownership facilitates integration into global markets

(h) Export share

15

20

25

30

35

t-1 t0 t+1 t+2

(i) Import input share

15

20

25

30

35

40

45

t-1 t0 t+1 t+2

MNCsLocal suppliers

Knowledge brought by MNCs spills over to local suppliers

Higher productivityMoving up the value chainIncreased complexity of products

Conclusion

� By serving as a channel of knowledge transfer, FDI inflows can stimulate economic growth and innovation in host countries

Thank you

3

54

32

1

The Panel

12 4

5

1.Hakan Ayen

2.Beata Javorcik

3.Ralph de Haas

4.George Chirakadze

5.Albert Bravo-Biosca

• T h e n e w g l o b a l l a b o r a t o r y f o r i n n o v a t i o n

a n d g r o w t h p o l i c y

Albert Bravo-Biosca

EBRD Annual Meeting, 15th May 2015

Why do we need more

experimentation?

Policy Business

Innovation and

entrepreneurship

policy…

… but little

evidence on

what works,

and what

doesn’t

Typically start big…

…without

prior small-

scale testing

Why not trial different designs to learn what works?

What is an experiment? A continuum of definitions…

Trying something new

Trying something new and put in place the

systems to learn

RCTs

• No rigorous learning or evaluation strategy

• No real “testing mindset”

• A “pilot”

• Rigorous formal research design

• Test a hypothesis

• Codifying and sharing resulting knowledge

• Sometimes but not always with some form of control group

• Randomised controlled trials

• Control group created by the programme manager/researcher using a lottery

• Field vs. “lab” experiments

• Different from a natural experiment

1. Experiment

Control group

2. Evaluate 3. Scale-up

IGL is a new global collaboration led by

Nesta that develops and tests different

approaches to support innovation,

entrepreneurship and growth

Our aims:

1. Improve the evidence base on the effectiveness of interventions

2. Encourage experimentation with new interventions

3. Push forward the knowledge frontier

Our partners

And on-going discussions with several other organisations

IGL Research Network

Some of our projects

Incentivising employees to contribute new ideas

Supporting technology development in emerging economies

Increasing bank lending for intangible-rich SMEs

www.innovationgrowthlab.org

• T h e n e w g l o b a l l a b o r a t o r y f o r i n n o v a t i o n

a n d g r o w t h p o l i c y

3

54

32

1

The Panel

12 4

5

1.Hakan Ayen

2.Beata Javorcik

3.Ralph de Haas

4.George Chirakadze

5.Albert Bravo-Biosca

The floor is open for questions