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SETI - Sustainable growth, Employment creation and Technological Integration in the european knowledge-based economy

Partners

Objectives

The aim of this project, which started October the 1st 2001, is to investigate the impact of technological globalisation and the rise of business services on national patterns of specialisation and their impact on employment. The interest for this issue arises from a number of stylised facts. First, Europe is losing competitiveness in sectors where the rates of growth of innovation and demand have been faster. Second, the process of internationalisation of R&D appears to have been more marked in Europe with respect to Japan and the US and this raises the issue of the impact of this trend on European national systems of innovation. Finally, the diffusion of Information and Communication Technologies (ICT’s) is producing an impact on the processes of internationalisation and the rise of business services. In this context we ask whether the poor performance of Europe in the new technologies has contributed to the slowdown in the catching-up process and the high rates of unemployment with respect to the US and what are the future perspectives.

The European Union has launched a new action to establish a strong knowledge based economy as a way to improve competitiveness and employment. The proposal addresses several questions raised by the research tasks indicated by the EU key action. In particular it directly focuses on the determinants of employment and unemployment in Europe analysing the role, played by technological globalisation and structural change. The main objective with respect to this task is to provide a framework for the study of the interplay between the rise of ICT, the globalisation process, the rise of business services and the dynamics of the European labour market. In order to achieve these objectives we will develop a model of differential disequilibrium equations where employment creation depends on changes in specialisation and technology diffusion. This quantitative analysis will be complemented by qualitative analyses of the impact of technological integration and the rise of the service sector on employment in EU countries.

The project will also give particular attention to the development and diffusion of ICT and the process of technological integration in Europe. Here the objective will be the assessment of the response of different knowledge based economies to these new trends. The study of the processes of technological globalisation and the regional dimension of technology diffusion and accumulation in the EU aims at highlighting the impact of these trends on the labour market. Moreover by looking at differences across countries, regions, sectors and across different typologies of workers (e.g. skilled and unskilled) the project aims at improving our understanding of the relations between economic performance and social cohesion. The comparative analyses across regions and countries will also allow the identification of societal actors, firms and institutions, which influence the learning process and will highlight the critical linkages and interdependencies between economic change and societal objectives.

Research Questions

Increasing technological globalisation, regional integration and the rise of business services are shaping national and regional specialisation patterns and hence influencing their growth and employment potential. The impact of these structural changes on countries’ patterns of specialisation and on economic performance and employment has not been fully investigated yet. A number of research-questions follow.

  • To the extent that employment perspectives -in Europe and elsewhere- are linked to production specialisation and that the latter is influenced by technological advancement and diffusion to what extent changes in employment are linked to changes in specialisation?
  • As mentioned above changes in specialisation are linked in the current phase to the developments of two main forces: the emerging ITC paradigm and increasing globalisation of technology. To what extent do these trends directly affect employment perspectives?
  • How will Europe respond to the challenges coming from the internationalisation and tertiarisation processes? To what extent the process of regional integration in Europe will accelerate technological innovation and vice versa? And will Europe be hampered by its internal diversity and the associated difficulties in taking advantage of scale and scope economies? In other words how will the deepening of the process of European integration affect the change in specialisation and growth potential.

Different interactions (and mismatch) between the publicly funded science base and the technological needs of the business sector can lead to different patterns of internationalisation of R&D. When domestic firms are not able to sustain the demands on the public sector, this is eventually satisfied by foreign firms (as in the case of the UK automobile and electronics sectors). When, on the other hand, national public science systems are not able to provide the skills and knowledge that domestic innovating firms require (also because of the increasing range of potentially useful technology), internationalisation of R&D can be seen as a remedy to improve the national science base.

The investigation of the patterns of internationalisation of R&D by country and by industry and also the (possible) regional patterns of innovation diffusion can help identify national and sectoral specificities in the process of internationalisation, their evolution over time and the challenges and opportunities faced by different EU member states.

  • To what extent increasing technological integration, given the opportunities of the ITC paradigm and the impact of the new action plan for a knowledge based economy will increase employment opportunities in Europe?

Internationalisation of knowledge production and diffusion has been accompanied by the growth of specific activities within the service sector and both trends have been favoured by the development of ICT. Tertiarisation in a broad sense is not a new phenomenon, and the growth of the share of employment in the service sector follows a very long trend. Still the tertiarisation trend experienced over the last two decades has some distinctive features, of which the most marked one is the unprecedented growth of business services. Their share in total employment rose from a few percentage points to nearly 10%. The new service sector includes very diverse types of activities, requiring different skills. The development of the highly qualified service activities in many new market niches is clearly linked with the diffusion of ICTs. This opens different opportunities. The business service sector constitutes is a new phenomenon, which leads to a new set of relations between firms.

  • How will different economies adjust to the broad organisational challenge brought about by the ITC technologies and service activities? To what extent new organisational paradigms, linked to the increasing role of services, will affect growth and employment performance at both the regional and national levels? Will, and to what extent, the process of regional integration strengthen the diffusion of new technology in Europe?

The share of manufacturing in developed countries has declined over the last decades. Considering the increasing role of services as suppliers of high-quality inputs into the manufacturing process one should ask whether business services can represent a new engine of growth for the entire economy and how national economic systems will be favoured or hampered by this evolution.

Services are, given the strong path-dependency of their development, highly country-specific, hence the emergence of a new growth regime is marked by national specificities, in spite of increased internationalisation. In this context we want to investigate the interconnections between national competitive advantages in specific manufacturing sectors and the development of service activities. Anyway, the characters of internationalisation are different according to the sectors involved: this holds for manufacturing and the service sector, as well as for the linkages between the two. Hence a relevant question is:

  • How do internationalisation and tertiarisation processes differ across countries? And how existing specialisation patterns in Europe will affect future dynamics?

The theoretical contributions of this project are the analyses of the relationship between technological innovation, sectoral specialisation and growth and employment creation. Within this broad framework we are particularly interested in investigating how the processes of globalisation, regional integration and the rise of business services are shaping this set of relationships. Particular attention will also be devoted to understanding how the development and diffusion of Information and Communication Technologies (ICT) has affected European competitiveness.

Relevance to the development of policy

The major areas of benefit to policy-making and research from this project will be as follows:

a) a flexible structural model that allows estimation of dynamic disequilibrium equations at a sectoral level. This model also allows to undertake policy simulations;

b) an assessment of the relevance and significance of different institutional frameworks in relation to country (and regional) competitiveness and employment, emphasising those elements worth translating into European policy for the amelioration of unemployment;

c) an assessment of the new role of services in development and employment creation and the identification of the areas of the service sector that have a good potential for employment creation. On the basis of qualitative and qualitative analyses we will draw suggestions on how that potential might be realised;

d) the study and the estimation of the relationship between innovation and employment in the different European countries and across different sectors can help to draw some light on how innovation might be improved with a view to net employment creation;

e) the qualitative analysis and the collection of data on the internationalisation of technology and on its impact on national competitiveness will help to analyse the implications of the globablising economy on growth and employment creation;

f) a rigorous analysis of the impact of policy measures and actions initiated by the Action Plan for a Knowledge based economy.

Work Content and Methodology

The research activities aim at investigating the relationship between innovation, specialisation and employment in Europe and to identify how the new role of services, technological globalisation and regional integration are shaping this relationship. In order to address these questions we will undertake both quantitative and qualitative analyses. In order to carry out the quantitative analysis we will define a framework growth model where the effects of specialisation, and innovation on growth and employment can be formally analysed and empirically tested. The model will consider knowledge accumulation and diffusion as an endogenous process affecting specialisation and growth and employment creation.

In this context it will be possible to formally analyse the relationship between growth and employment also in the service sector and compare the different national patterns. The quantitative analysis will be complementary to a qualitative analysis undertaken by the research partners. In particular in the first phase of the project the partners will work simultaneously on different but complementary issues (technological globalisation, the new role of services and regional integration). The model will then be refined on the basis of the main issues emerging from the qualitative analysis of the partners.

The following steps and results are foreseen.

a) updating of sectoral taxonomy: the taxonomy of expert set up by K. Pavitt is a useful tool to analyse how innovation takes place within firms belonging to different sectors but it has been applied only within the manufacturing sector. As a preliminary step the project aims at undertaking a similar effort of systematisation within the service industry and to highlight the interdependencies between manufacturing and services and to take into account the consequences of new ITC industries;

b) the role of services in shaping internationalisation strategies and in leading to structural transformations: an in depth review of the emerging role of services and ITC technology and their internationalisation processes in shaping transformation processes with particular reference to major EU countries;

c) empirical analysis of the relationship between specialisation, technological transformation and growth in major EU countries: qualitative analysis and empirical estimation of a structural model for the major EU economies;

d) the role of integration on technology diffusion, growth performance and employment: empirical assessment of the regional dimension of technology diffusion and accumulation in EU both at country and sector level;

e) policy implications and simulations: given results from points above and given results of c) and d) the structural models will be used to carry out policy simulations at both national and EU level taking into account the new initiatives taken at the EU level towards the setting up of a knowledge based economy (e.g. Europe initiative).

Results