ORGANISATION FOR ECONOMIC CO-OPERATION

AND DEVELOPMENT

Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into force on 30th September 1961, the Organisation for Economic Co-operation and Development (OECD) shall promote

policies designed:

– To achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries, while maintaining financial stability, and thus to contribute to the development of the world economy.

– To contribute to sound economic expansion in Member as well as non-member countries in the process of economic development. And

– To contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations.

The original Member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries became Members subsequently through accession at the dates indicated hereafter: Japan (28th April 1964), Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973), Mexico (18th May 1994), the Czech Republic (21^st December 1995), Hungary (7th May 1996), Poland (22nd November 1996), Korea (12th December 1996) and the Slovak Republic (14th December 2000).

HIGHLIGHTS

There is a clear trend

in the OECD area towards

a knowledge-based economy…

The ability to create, distribute and exploit knowledge is increasingly

central to competitive advantage, wealth creation and better standards of

living. The STI Scoreboard 2001 presents the latest OECD indicators on the

knowledge-based economy. Many are new, and they are brought together for

the first time in one publication. As a range of new indicators show, the

knowledge-intensity of OECD economies is increasing. Investment in

knowledge, particularly in R&D and software, is rising, as is investment in ICT.

Moreover, the composition of investment is changing, particularly in R&D

where a growing proportion is funded by business. Knowledge flows within

and across OECD economies are increasing as well, as shown by growing

co-operation in science and innovation, greater international mobility of

high-skilled workers and continued globalisation of trade and investment.

Information and communications technologies are also spreading quickly and

support more rapid knowledge creation and diffusion.

… which is reflected in the

economic and innovative

performance of certain OECD

countries.

The knowledge-based economy is also reflected in the economic

performance of several OECD countries. High-technology sectors contribute

to more rapid growth in some, and the share of these sectors – both in

manufacturing and services – continues to grow. Moreover, the overall

efficiency of capital and labour has increased in some OECD countries in the

1990s, partly owing to more rapid technological progress. Indicators of

patenting confirm the swift pace of innovation.

Nevertheless, large differences

continue

to mark the move towards

a knowledge-based economy.

While the overall trends are clear, large differences remain within the

OECD area. The Nordic countries, notably Finland and Sweden, and the

United States appear to be in the lead in the transition to a knowledge-based

economy, as high investment in knowledge, rapid innovation and the pace of

diffusion of ICT indicate. Countries such as Japan and several large European

countries appear to lag in important areas, including investment in

knowledge, innovation and growth of a high-skilled workforce. For certain

OECD countries, openness to international knowledge flows also seems to

lag. This suggests scope for further progress. However, the transition to a

knowledge-based economy requires progress in many areas, and even

countries that are ahead in many of them lag in others.

New indicators show that the knowledge-intensity of OECD economies

is increasing

Investment in knowledge

is growing more rapidly than

investment

in fixed capital…

Investment in knowledge, defined as public and private spending on

higher education, expenditure on research and development (R&D) and

investment in software, accounts for about 4.7% of OECD-wide GDP. It would

exceed 10% of GDP if education expenditure for all levels was included. By

this measure, Sweden, the United States, Korea and Finland are the four most

knowledge-based economies. During the 1990s, investment in knowledge

increased by 3.4% annually in the OECD area, while investment in fixed

capital increased by 2.2%.

OECD, STI Scoreboard 2001

… and ICT has been the most

dynamic element.

ICT hardware and software have been the most dynamic area for

investment. The available data show that it rose from less than 15% of total

non-residential investment in the business sector in the early 1980s to

between 15% and 35% in 1999. Investment in software accounted for 25-40% of

the contribution of ICT to overall investment growth.

Investment in education and

skills underpins the growth of

a skilled workforce.

Education and skills, which underpin the growth of a skilled workforce,

account for the bulk of investment in knowledge. In 1999, 65% of the

population aged 25-64 in the OECD area had completed upper secondary

schooling. The share is more than 20 percentage points higher in the United

States and Japan than in the European Union. In 1999, 14% of the OECD-area

population aged 25-64 had university-level education.

Human resources in science

and technology are

expanding…

In 1999, there were about 38 million workers (about 25% of the labour

force) in highly skilled S&T-related occupations in the European Union. The

share was highest – about one-third – in the Nordic countries (Sweden,

Denmark, Finland) and in the Netherlands, Germany and Belgium. Human

resources in science and technology (HRST) grew significantly between 1995

and 1999 in southern Europe, Ireland and Finland. The growth rate of HRST was

similar in European Union countries and the United States (about 3% annually).

… as is expenditure for R&D.

OECD-area expenditure on R&D has increased considerably over the

past two decades. It has grown by almost 4% a year and has accelerated since

the mid-1990s. Most of the increase between 1994 and 1999 was due to the

United States. During the 1990s, R&D expenditure grew by more than 13%

annually in Ireland, Mexico and Iceland. In 1999, OECD countries allocated

about USD 553 billion to R&D, or approximately 2.2% of overall GDP. Since the

mid-1990s, R&D intensity has increased continuously in Japan and the United

States and has remained more or less stable in the European Union.

Innovation relies also on

venture capital.

Despite a recent slowdown, venture capital remains a major source of

funding for new technology-based firms. Between 1995 and 1999, it amounted

to 0.21% of GDP in the United States and 0.16% of GDP in Canada and the

Netherlands for early and expansion stages. Almost half of venture capital

investment in the OECD area is for ICT, representing more than 67% in the

United States and over 53% in Ireland and Norway. Biotechnology is also of

growing importance, accounting for the bulk of venture capital investments in

Hungary, and about 15% in the United States.

The role of business in R&D is increasing

Business is the main source of

increased spending on R&D.

The business sector is the major source of R&D financing. In 1999, it

provided more than 60% of domestic R&D funding in OECD countries, a slight

increase from 1990. Over the decade, the business sector’s share increased

from 57% to 67% of total R&D funding in the United States; it remained stable

in Japan at around 72% and increased from 52% to 55% in the European Union.

In most countries, government’s role in funding R&D declined over the 1990s.

More R&D spending is

directed towards basic

research…

Most countries spent a higher share of GDP on basic research in 1998-99 than

in the early 1980s. Since 1995, the ratio of expenditure on basic research to GDP

has been flat in the United States, but it has grown in Japan, France and Italy.

Relative to GDP, Switzerland allocates close to 0.8% of GDP to basic research,

almost twice as much as the United States or Japan. In Korea, Japan and Ireland, around one-third of basic research is performed by the business sector.

… with less going to defence…

During the 1990s, the share of defence R&D budgets relative to GDP

dropped in most countries, largely owing to the overall reduction in military

spending. France, the United States and Sweden experienced the strongest

decline. Nonetheless, more than half of the US government R&D budget is

allocated to defence, as is around a third of the total R&D budget in the

United Kingdom and around a quarter in France and Spain.

… and more to health…

During the 1990s, government support for health-related R&D rose

quickly in Japan (10%) and the United States (8%), with growth rates about

double that in the European Union (5%). Compared to the European Union

and Japan, government support for health R&D is high in the United States.

In 2000, it represented about 0.2% of GDP, far above the figures for the

European Union (0.05% in 1998) and Japan (0.03%). This difference is partly

due to institutional differences. When appropriate adjustments are made,

however, Finland, Austria and the Netherlands have health R&D budgets

relative to GDP similar to that of the United States. The difference in

government support for health R&D between the United States and the

European Union also narrows sharply.

… with a growing share

for biotechnology.

A significant and increasing part of health R&D concerns biotechnology.

Data for biotechnology R&D are currently only available for 20 OECD

countries and do not include the United States and Japan. They show that,

in 1997, public funding of biotechnology R&D amounted to approximately

USD 3.4 billion. Germany (USD 1.0 bi llion), the United Kingdom

(USD 0.7 billion) and France (USD 0.6 billion) account for the bulk of it.

Belgium and Canada have the highest ratio of biotechnology R&D to total

government budget appropriations for R&D (14% and 10%, respectively).

R&D in the ICT sector also

contributes significantly

to overall R&D.

ICT also accounts for a growing share of overall R&D. Data for 19 OECD

countries indicate that, in 1998, R&D expenditure for ICT manufacturing was

approximately USD 96 billion; for the ICT services industries, data for

11 OECD countries show expenditure of USD 18 billion. In 1998, Finland was

the only country to allocate more than 1% of GDP to ICT-related manufacturing

R&D. ICT-related R&D intensities of the large European economies are well

below those of the United States and Japan. In the 1990s, the United Kingdom

is the only large European country where ICT-related R&D increased slightly

in manufacturing and services industries (by 1% and 3% a year, respectively).

In manufacturing, ICT-related R&D decreased in Germany, France and Italy by

1%, 2% and 0.5%, respectively.

Knowledge flows within and across economies take on greater importance

Innovation increasingly relies

on co-operation between firms

and universities.

The use and generation of knowledge depend not only on the creation of

knowledge but also on flows of knowledge within and among economies.

Collaboration between business and non-business entities is rising, and the

share of R&D performed by the higher education and government sectors and

funded by the business sector is increasing. It represented 6.1% and 4.1% of

higher education and government research, respectively, in 1998. Data from

innovation surveys show that firms with co-operation arrangements with higher

education or government institutes account for around 10% of total employment.

International co-operation in

science and innovation

is growing rapidly…

Production of scientific research and technological know-how also

increasingly depends on research conducted in other countries. In the mid-

1990s, 27% of scientific publications in the OECD area were the work of

multinational teams and 7% of patents were the result of international

co-operative research. In smaller European countries, such as Belgium,

Denmark and Austria, over 40% of scientific publications have a foreign

co-author. When intra-EU co-operation is factored out, researchers in the

United States and the European Union have a similar propensity to

co-operate with foreign researchers; in Japan, instead, international

co-operation in science and technology is quite limited.

… as is cross-border

ownership of inventions.

More and more technology is owned by firms from a country other than

the inventor’s country of residence. In the mid-1990s, an average of 14% of all

inventions in any OECD country were owned or co-owned by a foreign

resident. Likewise, OECD countries owned around 15% of inventions made

abroad. Foreign ownership of domestic inventions is high in several small

OECD countries, but also in Canada and the United Kingdom, where US

companies own a large share of inventions. Domestic ownership of foreign

inventions is also high in small countries; 39% of all inventions owned by

Swiss residents were invented abroad. In the United States, the share of

foreign inventions in the patent portfolio is only 13%. Japan and Korea are the

least internationalised in this respect.

Worker mobility supports the

flow of knowledge across borders…

Knowledge flows also result from migration. In the United States, for

instance, the largest number of scientists and engineers (S&Es) with S&E

doctorates who were born elsewhere in the OECD area are from the United

Kingdom and Canada; relatively few are from Germany or Japan. However,

three times as many foreign-born scientists are from China and twice as many

from India as from the United Kingdom. In 1998, for the 14 European countries

as a whole, non-national HRST amounted to only 3%. However, European

countries differ widely; Luxembourg employs by far the largest share of

non-nationals (33%), followed by Austria, Belgium and the United Kingdom.

… as does student mobility.

International mobility of students also represents a potential flow of

qualified workers. Five countries are host to more than 70% of all foreign

students in OECD countries. The United States attracts 29% of foreign

students, followed by the United Kingdom (14%) and Germany (12%).

English-speaking countries account for over 50% of the OECD total. In

Switzerland, Australia, Austria, Belgium and the United Kingdom, foreign

students represent more than 10% of total enrolments. In Korea, Mexico and

Poland, they account for less than 1%.

The globalisation of the

knowledge economy is

apparent in the rapid growth

of international transactions.

National economies also integrate in other ways. Financial transactions

(e.g. direct investment and portfolio investment) constitute the fastest growing

segment of international transactions. The upsurge in direct

investment and portfolio investment was especially rapid in the second half

of the 1990s. However, such investment flows have proven highly volatile. The

lowering of trade and non-trade tariff barriers has also contributed to a steady

rise in international trade.

Trade is growing rapidly,

particularly in services…

The share of trade in international transactions has remained persistently

high, averaging 15% of OECD GDP in the 1990s. That of trade in goods is four

times that of trade in services, despite the acceleration of the latter. In the

second half of the 1990s, international trade in services as a share of GDP

picked up slightly, partly as the result of the growing tradability of certain

services, e.g. software, financial services and accounting. The trade-to-GDP

ratio is only around 10% for the United States, Japan and the European Union

when intra-EU trade flows are excluded. During the 1990s, the international

trade-to-GDP ratio grew on average about 2% in the European Union and the

United States but declined slightly in Japan.

… and foreign direct

investment has picked

up in recent years...

Flows of foreign direct investment (FDI) have surged in recent years,

owing to renewed dynamism in the world economy and a favourable

international investment environment. FDI flows as a percentage of GDP are

high for Belgium-Luxembourg, New Zealand, Sweden, the Netherlands,

Switzerland and the United Kingdom. They remain small in Turkey, Korea,

Japan and Italy. In Germany, Japan and the United Kingdom, outward

investment greatly exceeds inward investment, while Australia, Hungary,

Poland and Spain receive more foreign capital than they invest abroad.

… partly owing to increases in

mergers and acquisitions.

Mergers and acquisitions are the most common form of FDI. During the

1990s, cross-border mergers and acquisitions increased more than five-fold

worldwide on a value basis. The United States was the main target during the

1995-99 period, attracting on average four times as many deals in terms of

number than the United Kingdom, the second target country. Germany and

France took third and fourth place. During the 1990s, the most active sectors

at global level were oil, automotive equipment, banking, finance and

telecommunications.

Multinational firms also

account for a growing share of

activity in many countries…

The share of turnover under foreign control in the manufacturing sector

ranges from about 70% in Hungary and Ireland to under 2% in Japan. In the

period 1995-98, the shares of foreign affiliates in manufacturing turnover rose

almost everywhere. In terms of manufacturing employment, their shares range

from around 50% in Ireland, Luxembourg, and Hungary to 1% in Japan. In the

second half of the 1990s, when manufacturing employment typically declined

in national firms, it rose in foreign affiliates in all countries except Germany

and Netherlands. In most cases, this reflected changes of ownership owing to

buy-outs and acquisitions.

… and increasingly

in the services sector

as well.

The share of turnover under foreign control in the services sector is over

20% for Hungary, Belgium, Ireland and Italy. In terms of employment, the

share of foreign affiliates ranges from 19% in Belgium and around 14% in

Hungary and Ireland to less than 1% in Japan. In all countries except Norway

and Finland, the share of turnover of foreign affiliates was greater for

manufacturing than for services.

Information and communications technologies are diffusing rapidly

The knowledge-based economy

is accompanied by the rapid diffusion of ICT,

especially the Internet.

The diffusion of information and communications technology is a key

enabler of the knowledge-based economy. Access to ICT has grown rapidly

over the past years. At the end of 1999, OECD countries had more than one

network access channel for every two inhabitants and several countries had

more than one access channel per inhabitant. The Nordic countries maintain a

clear lead over the rest of the OECD area when connectivity provided by

wireless networks is taken into account. Internet technologies are diffusing

very rapidly. At the end of 1999, there were nearly 50 million Internet

subscribers in the United States, close to 11 million in Japan and in Korea,

9 million in Germany, 7.4 million in the United Kingdom and 6.2 million in

Canada. A ranking of countries in terms of Internet subscribers per

100 population shows high levels of take-up in Korea, Sweden, Denmark,

Canada, the United States, Netherlands, Iceland and Norway.

Access to the Internet is

soaring in most countries…

Personal computers are still the main device used by households to access

the Internet. In most countries for which data are available, more than half of all

households now have computers. In 2000, there was a noticeable gap between

northern European countries such as the Netherlands (69%), Denmark (65%) and Sweden (60%) and southern European countries such as Italy (28%), France (27%) and Turkey (12%). Internet access in households is soaring everywhere, especially in Italy where the access rate grew by 144% between 1999 and 2000, as well as in the United Kingdom (75%), Japan (74%) and France (73%).

… as is its use, but Internet

transactions remain limited.

The share of adults using the Internet from any location is also increasing

rapidly. More than half of the adult population now uses the Internet in

Sweden (68%), Denmark (62%), Finland (54%) and Canada (53%). The Internet

is still mostly used to search for information, and the propensity to carry out

transactions over the Internet varies widely. In Sweden, 43% of Internet users

purchase over the Internet, followed by the United Kingdom (33%), the

United States (30%) and Denmark (29%). Business use of the Internet is

increasing very rapidly. Internet penetration in businesses with ten or more

employees has reached 80-90% in the Nordic countries, Australia, Canada, the

Netherlands and the United Kingdom. In the Nordic countries, over 40% of

employees use the Internet in their daily work. The use of the Internet to

conduct transactions, although rising fast, is limited. The value of Internet

sales in 2000 ranged between 0.4% and 2% of total sales, while electronic sales

(including those over all computer-mediated networks) reached almost 6% in

the United Kingdom.

The rate of diffusion differs

between users and across

countries…

Internet penetration in households is strongly affected by household

income. The difference between Internet access in households belonging to the

lowest and highest income quartiles is highest in the United States and lowest in

Denmark. Internet usage rates are much higher in large than in small enterprises

and vary in different economic sectors. The most intensive business users are

generally firms in finance and insurance, business services and wholesale trade.

… partly owing to differences

in access costs.

A key determinant of cross-country differences in the diffusion of the

Internet and electronic commerce is access cost. There are large differences

in prices of leased lines, which provide the infrastructure for business-tobusiness

electronic commerce. The Nordic countries have the lowest charges,

at about one-fifth the OECD average. Differences in Internet access cost for

consumers are even more marked. At peak times, countries which

traditionally have had unmetered local calls – Australia, Canada, Mexico, New

Zealand, the United States – are among the least expensive.

The structure of OECD economies and of trade reflects the increasing role

of knowledge

As knowledge has grown in

importance, so has the share of

knowledge-intensive

industries…

By the end of the 1990s, high- and medium-high technology

manufacturing accounted for about 9% of total OECD value added. The

share of high- and medium-high technology industries was largest in

Ireland, where they accounted for over 16% of value added, and in Korea

(12.6%). Among the G7 countries, Germany and Japan had the largest shares

of such industries, at 11.7% and 10.7% of total value added, respectively. In

many OECD countries, including the United States, this sector has grown

rapidly over the 1990s.

… and knowledge-intensive

services.

Knowledge-based “market” services accounted for 18% of total value added

in the OECD area. Post and telecommunications, finance and insurance and

business services are typically the most intensive technology users among

market services. These sectors accounted for almost 25% of total value added in

Switzerland. Among the G7 countries, the United States and the United Kingdom

had the largest knowledge-intensive services sector. In Mexico and Greece, this

sector accounted only for about 10% of value added. If knowledge-intensive

“non-market” services (education and health) are included, knowledge-intensive

services account for about 29% of total value added in the OECD area.

The changing structure

of OECD economies is also

reflected in business R&D.

Services have a much smaller share in R&D than in GDP. In 1998, they

accounted for about 17% of total business sector R&D in the OECD area, an

increase of 2% from 1992. Countries differ widely, however. In Norway, 48% of

total business R&D is carried out in the services sector, 37% in Denmark and

31% in the United States. Although the share of services R&D increased over

the 1990s in Germany, France and Japan, these countries still have the lowest

share of services R&D (less than 10%).

The ICT sector has grown very

rapidly in several OECD countries.

The ICT sector makes a substantial contribution to the economy. In 1999, ICT

value added represented between 5% and 14% of business sector value added in OECD countries. The importance of ICT supply has been increasing, not only in countries like Hungary, the Czech Republic and Mexico, which are catching up in terms of infrastructure, but also in Finland, Sweden, Norway, the Netherlands and the United Kingdom. In Finland, the ICT sector’s share of value added increased by 4.7 percentage points over the 1995-99 period. It now represents over 13% of total business sector value added. The ICT sector is a major source of employment growth. OECD employment in the sector grew by over 12% in the

1995-99 period, i.e. an average annual rate of over 3% a year, double that of overall business sector employment. ICT services are driving this growth.

International trade

in high-technology goods

is also rising rapidly…

The growing importance of knowledge-intensive industries is also visible

in the structure of OECD manufacturing trade. The share of high-technology

industries in total OECD trade increased from 18% in 1990 to one-quarter

in 1999. The highest growth rates in OECD manufacturing trade in the 1990s

were in high-technology industries: pharmaceuticals, radio, television and

communication equipment and computers. The shares of medium-low- and

low-technology industries have gradually declined.

… although only a few OECD

countries have a strong comparative advantage in

high-technology industries.

In spite of the growing importance of high-technology industries in overall

trade, few OECD countries specialise in high- and medium-high-technology

industries. In 1999, the structural surplus in these industries represented more

than 15% of total manufacturing trade for Japan, about 7.5% for Switzerland and

around 5% for Germany, Mexico and the United States. A considerable number of OECD countries still have a strong comparative advantage in medium-low technology and low-technology industries. The structural surplus of Turkey, New

Zealand and Iceland in these industries accounted for more than 20% of total

manufacturing trade. For most OECD countries, these specialisation patterns

have changed little over the past decade.

Knowledge and innovation increasingly underpin economic performance

Innovation is a key driver

of economic growth…

Recent patterns show that knowledge and innovation make a large

contribution to growth. A high share of investment in fixed capital goes for ICT.

Moreover, the overall efficiency of the use of capital and labour in the

production process, or multi-factor productivity (MFP), increased rapidly in

Ireland, Finland, Australia, Canada and the United States in the second half of

the 1990s. More rapid MFP growth points to faster technological progress.