Monday, January 14, 2008

Global Economic Prospects 2008

The Global Economic Prospects 2008 report was released. It raises important issues on technological advancement and diffusion, highlighting the fact that developing countries remain very dependent on technology from high income countries although there are some indications that the gap is closing somewhat. Specific government interventions on R&D, science and innovation in developing nations remain important policy options.

The report highlights some policy directions:

1. Open trade and investment policies helps with exposure to technologies but does not automatically facilitate absorption. A focus on the development of human capital and an appropriate regulatory environment remains key.

2. Many older types of technology are complementary to infrastructure. Goverments remain responsible that publicly supplied technologies are widely available, are reliable and economically.

3. The dissemination of technology throughout a country deserves attention. Technology tends to remain in major centres and top-performing firms.

4. Direct intervention in diffusion of technology and innovation, but following East Asian success stories, only under strong performance and monitoring rules.

General highlights of the report:

- Global economic growth is expected to moderate to 3.3%.

- There is a serious downside risk that external demand for developing country products and commodity prices could decline if the US moves into a recession

- There is also a risk that monetar authorities overreact by stimulating the economy, resulting in overinvestment in mainly rapidly growing developing economies.

- A weaker dollar would hurt those with dollar-based assets and exporters

- Developing countries with large current account deficits, pegged exchange rates and rising inflation are particularly vulnerable to sudden adjustments in financial markets.

Highlights on the special topic of the report - technology and its diffusion:

- Most developing countries lack the ability to generate innovations at the technological frontier.

- Developing country innovators work in high-income countries. Forexample, 2.5 million of the
21.6 million scientists and engineers working in the United States were born in developing countries.

- Technological achievement is converging rapidly, but the gap remains large. This has been achieved on a sustained policy of increased openness to foreign trade and foreign direct investment (FDI), plus increased investments in human capital, have contributed to substantial improvements in technological achievement in developing countries over the past 15 years

- Macroeconomic stability and educational policies improved absorption of technologies.

- Progress in improving the business climate and governance indicators has been much more mixed. As a result, technological absorptive capacity has advanced much less quickly than technological achievement.

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