World Bank Knowledge Economy

Products and Strategy:

Emerging Lessons

Carl Dahlman
PREM Learning Week
April 9, 2003
Washington DC
 Structure of Presentation

I. Why Focus on Knowledge Economy?

II. Knowledge Economy Definition
III. Is KE Agenda Relevant for Diversity of Bank Clients?
IV. Knowledge Economy Framework and ESW
V. Knowledge Economy Work Across the Bank
VI. Two WBI Tools: KAM and K4D Community
VII. Emerging Lessons from Knowledge Assessment
VIII. Possible Follow-Up projects
Annex: SWOT Analysis of Russia

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 Why focus on Knowledge Economy?
Knowledge has always been important for development.
Are giving it more attention because we are in period of speed-up in
creation and dissemination of knowledge.
Bottom line is constant restructuring and upgrading in an increasingly
competitive international environment
While this opens up opportunities for leapfrogging, it also raises risks
that developing countries may fall behind because of an increasing
knowledge divide.

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 The Knowledge Economy Definition
The aim of the Knowledge Economy Program of t is to
help countries develop these strategies to reduce the risk
and increase the benefits.
There are many definitions of the “Knowledge
Economy”, many emphasizing just information
technology and high technology
We take a broader definition:
“An economy that makes effective use of knowledge for
its economic and social development. This includes
tapping foreign knowledge as well as adapting and
creating knowledge for its specific needs.”

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Is KE Relevant for Diversity of Bank Clients?
Yes, it is about making effective use of knowledge
across all sectors, and any country can do better.
Middle income countries are more aware of the need to
keep up, and can do more to take advantage of new
global knowledge as well as to develop their own
knowledge
But even very poor countries need to make more
effective use existing local knowledge and global
knowledge.
Key issues and policy agenda will be different according
to the capabilities and needs of each country.
 KE Framework and ESW
To Analyze the KE we have developed a
framework which cut across different
networks
Economic incentive and institutional regime
that provides incentives for the efficient use
of existing and new knowledge and the
flourishing of entrepreneurship
Educated, creative and skilled people
Dynamic information infrastructure
Effective national innovation system
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Challenge for ESW in this Area
In Bank (as in client governments) efforts are too
compartmentalized into different sectoral silos
It is hard to work in more coherent and synergistic way across
different functional areas, although this is required to develop
effective strategies
In many ways PREM is best placed to play the lead coordinating
role as it is the most cross sectoral
But it is hard to accomplish in practice. Most work being done by
FPSI and HD
Ideal is to have cross sectoral team expertise to undertake this kind
of work
Functionally, the Country Director is the most appropriate internal
client as effective approach requires systemic integration as part of
broad diagnostic
 World Bank KE Program to Date
World Bank Institute started program in 1999. Consists of:
Intense one week policy forums for high level policy makers, as well as training for
Bank staff Regional policy conferences and seminars on KE
Detailed country knowledge assessment (Korea, China, Russia)
KAM Web-based tool on country knowledge assessments
A K4D Community of practice
Regions of the Bank have been carrying the work further:
The Latin America and Caribbean region has produced two major regional reports and
is undertaking country specific reports in Argentina, Chile, and Mexico
The EAP Region has been developing analytical tools for economy wide as well as
firm based assessments,
The Middle East and North Africa Region organized a conference in September, is
supporting country specific work on: Jordan, Morocco, Algeria
The Europe and Central Asia Region has organized two regional conferences and set
up a KE unit to do detailed country specific knowledge assessments: Lithuania,
Poland, Turkey, Latvia

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A community of practice focused on K4D issues, and was
launched October, 2002 to provide:
Cross thematic dialogue and exchange of experiences as
there is too much compartmentalization.
A platform for cross regional exchange of experience as
colleagues in various regions are doing work in this area.
Links to work done outside Bank by other institutions and
countries through link to Knowledge Economy page on
the Global Development Gateway and a growing global
network of persons working in this area.
See www.k4dcommunity.org

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 A KE Benchmarking Methodology
KAM: 69 structural/qualitative variables to
benchmark performance on 4 pillars
Variables normalized from 0 (worst) to 10
(best) for 100 countries
www1.worldbank.org/gdln/kam.htm
Basic scorecard for 14 variables at two
points in time, 1995 and 2002
Aggregate knowledge economy index (KE)

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 Knowledge Economy Index
ECON. INCENTIVE REGIME: Econ. Incentive Regime
INNOVATION:
-Tariff & Non-tariff barriers 10 -Researchers in R&D
-Property Rights - Manuf. Trade as % of GDP
-Regulation - Scient. & Tech. Pub. per
million people
5

Information Infrastructure 0 Innovation

INFORMATION INFR.:
-Tel. Lines per 1000 people
- Computers per 1000 people
- Internet hosts per 10,000 people
EDUCATION:
- Adult literacy rate
- Secondary Enrollment
- Tertiary Enrollment
POLAND Education

most recent 1995

Strong Correlation KEI & GDP/Capita
Knowledge Economy Index
Emerging Lessons from
Knowledge Assessments
Benchmarking is just first step, but it helps to put country in
global context
Need to deepen analysis with more detailed country
knowledge
Greatest value of approach is systems integration. Helps to
develop stakeholder awareness
If analysis is done together with key stakeholders, can help
develop stakeholder buy in and help facilitate consensus for
concerted action
Hardest but most important part is reform of the economic
and institutional regime
Implementation of plans needs to be continuously
monitored and adjusted to changing circumstances (Korea
example)
 Possible Follow Up Projects
Knowledge Economy Competitiveness Project
Hasn’t been done yet, but highly desirable because of the need to integrate actions
across sectors
Sectoral Projects, but keeping links to policies and actions needed in other
sectors
Economic restructuring projects (financial sector, trade and competition policy, labor
market reform, etc)
Institutional reform projects, especially judicial and government reform in order to
strengthen rule of law and improve government effectiveness
Levering Knowledge for basic needs project for low income countries (preventive
medicine, basic education, upgrading local knowledge to improve agricultural
productivity)
Life Long Learning Strategy-concrete follow up in China, possible for various ECA
countries
Restructuring R&D Infrastructure and Improving the Innovation System-natural
follow-up for most ECA countries
ICT: telecom policy reform, e-government, e-commerce, e-education, projects to
reduce digital divide
ANNEX
-Russia SWOT Analysis
 Russia: Current Situation and Risks
Russia’s growth is acknowledged as unsustainable
Russia is too dependent on natural resource sector (only sector
growing, accounts for 80% of exports)
Industrial sector is technologically outmoded and not competitive
Russian economy suffers from overvalued exchange rate
because of strong natural resource exports
Only dynamic actors are natural resource based industrial groups
High human capital and strong science base are depreciating
Russia risks becoming just a natural resource exporting economy
Russia needs to diversify and upgrade its economy to improve
international competitiveness
 Russia: Summary of Strengths
&Weaknesses
STRENGTHS WEAKNESSES
ECONOMIC & Reform oriented govt. Poor investment climate
INSTITUTIONAL Strong trade balance Poor rule of law
REGIME Strong natural resource Weak financial system
based groups Dutch disease
INNOVATION High S&T manpower Poor linkages with
Strong basic research productive sector
SYSTEM
High S&T capability Insufficient use of global
knowledge
Weak diffusion systems
EDUCATION & High average Poor link to labor market
educational levels Weak Life Long Learning
HUMAN
RESOURCES High number of S&T Lack of flexibility of
and technical workers educational system
INFORMATION & Software development Low penetration ratios
COMMUNICATION capabilities High prices
INFRASTRUCTURE Strong ICT capability Poor application and use
Russia: Summary of Opportunities & Threats
OPPORTUNITIES THREATS
ECONOMIC & Reverse capital flight and Continued capital flight
INSTITUTIONAL tap FDI by improving Big industrial groups
investment climate may capture
REGIME
Develop financial system government
INNOVATION Tap global knowledge to Falling behind global
increase value added in advances in knowledge
SYSTEM
natural resources and Continued loss of
diversify economy scientific talent
Harness potential of
strong S&T base
EDUCATION & Launch major re-skilling Continued brain drain
program Resistance from
HUMAN
RESOURCES Institute LL learning established institutions
Reform higher education Rigid university curri-
to market needs culums
INFORMATION & Expand penetration Risk of digital divide
COMMUNICATION ratios Difficulty of changing
INFRASTRUCTURE Focus on applications processes to use ICT
 Russia: Tentative Recommendations
Economic and Improve investment climate by strengthening rule and
application of law, reducing administrative barriers
Institutional Strengthen financial system (banks and stock market)
Regime Improve labor mobility across industries and regions
Increase tax on natural resources and strengthen
economic competition
Support development of new SMEs

Innovation Tap global knowledge more effectively through capital

goods imports, technology licensing, strategic FDI
System Link S&T base to economy’s needs through better S&T
policy, technology forecasting, matching grants, stronger
intellectual property rights
Support technology parks, incubators, university spin-
offs, venture capital; promote technology dissemination

Education & Launch major program to re-skill working population to

needs of labor market and restructuring economy
Human Improve teaching methods in secondary schools to
nurture critical thinking and problem solving
Resources
Move towards establishment of Life Long Learning

Information & Establish more competitive telecom regulatory regime

Address risk of digital divide by expanding access for
Communications low income and rural population
Infrastructure Strengthen application, especially in e-government, e-
business and e-education
 Russia: Emerging Lessons
Radically improving international competitiveness requires
explicit government strategy for building a knowledge economy
in Russia
Important to find the most advantageous ways of participating
in globalization
Labor intensive export strategies are being pre-empted by size
and strength of some of the new developing country players
such as China
Now critical to engage and move up in global value chains
This requires strengthening ability to create, acquire, adapt,
disseminate, and use knowledge
Knowledge strategy has to include measures to build a
favorable economic and institutional regime