INDUSTRY AND ENERGY DEPARTMENT WORKING PAPERINDUSTRY SERIES PAPER No. 32

National Systems SupportingTechnical Advance in, Industry:The BrazHi'an Experience

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NATIONAL SYSTEMS SUPPORTINGTECHNICAL ADVANCE IN INDUSTRY:

THE BRAZILIAN EXPERIENCE

Carl J. Dahlman-and

alaudio R. Frihtak

June 1990

Industry Developmeni DivisionIndustry and EnXrg DpartmetPolico, Research and External Affairs

TABLE OF CONTENTS

Page No.

EXECUTVE SUMaMARY ............. ,...................................... i -ii

L INTRODUCFION AND OVERVIEW .......................... * I

IL BRAZIL'S COMPETITIVE POSIMTON AND THE TECHNOLOGICAL EFFORTSOF BRAZLIN FIRMS ........................... 3

A BrazisLaggng nternational Cnpett.ven.ss. 3B. he Scope and Intensity of R&D Activities

AnmongIndustrialIFs ............ 4

m. TECHNOLOGY POLICIES .... 9

A. Anms-Lenth TechnologyTransfer. 9B. Imports of Capital Goods ..... 12......... 12C. Foreign Iestment. .13D. Fbin a Incentives for Lod Tehnology Devlopment .14

TV. INSTITUTIONAL NETWORK SUPPORTING TECHNOLOGY DEVELA(*MENT- 15

A. Historic Badground and Cufrent Structure. 15B. PublcR&D lnttutes. .16a Public and Agtao R&D 3Ependitures .18D. Human Capita Formation .20

V. CONCLUSIONS .u

ANNEX

BlBIBOGRAPHY

The World Bank does not acsept resposibility for the vles ewpressed herein which are those of the authorsand should not be attributed to the World Bank and its affiliate organizations. The finding, interpretationsand conclusions do not represent offical polcy of the Bank. The authors would like to thank BasantaChaudhuri for research assitnce, Stephanie Genrd for editorial assistance, Anna Marie Maranon andWilson Peiris for word prxcing suppor, and Valerie Chlsholm for secretarial services.

EXECUTIVE SUMMARY

J. During the late 1960s and most of the 197(s, Brazi was one of the fastet gowingecmnomies in the world. Yet in the past decade, output growth of Brazilian manufacturing industy hasslowed sificantly. In contrast with East Asian and sevral other newly Industrializing countries, Brazilhad low average GDP and manufcXturng growth rates In the 198(-2.9% and 22% p.a, respectively. Inaddition, Brazil's share of manufctured exports in manufactured output-11.8% in 1987-Is relatively small,even though manufactured export growth has outstripped manufactured output growth since 1965.

IL Many reasons explain Brazls inability to sustain growth. This paper focuses ontechnological factors behind Brazil's faltering competitie position-and on the role of Brazil's innovationsystem he M m _ nat sstem Is here defined as the network of agents and set of policies and institutionsthat affect the Introduction of new technology to the ecnomy, whether or not It Is new by world standards.Since in the vast majority of developing countries, technology is imported, the innovation system is definedvey broadly to include policies toward arms-length technology transfer, intellectual property rghts,imponation of capital goods, and direct foreign lnwestmenL lbe innovation system also comprises thenetwork of public and private institutions and agents supporting or undertaking scientific and technologicalactvities, including research and development, diffusion of technology, and creation of tehcl humancapitaL

;l; This paper's major contention is that the gap between the average Brazilian firmsperformance and the price-performance frontier has widened due to a combination of

e limited technological Involvement by domestic producers;

- regulatory and poUcy restrictions on both embodied and disembodied forms of technologyimports and

* weak institutiona suppor tO industrial firms.

In addition, major gaps in the educational system, particularly low enrollment levels in secondawy schooland in science and engineering, undermine the quality and quantity of the technical labor force and adverselyaffect the acquisition, use, and development of technology.

iv. This paper suggests that much of the underlying motivation for the Brazilian Government'stechnology policies was not the improvement of the countrYs technical base but the more short-sightedconsideration of saing or earning foreign xc hange. At the same time, the government's technology policesdid appear to Improve the bargaining position of local fims in negotiating arms-length technology transferdeals. In addition, they promoted entry of domestic fims in areas that normally would be precluded throughpatent protection or the exercise of overwhelming market power (pharmaceuticals and electronics), whilestimulating the creation of a fairly sophistcated capital goods sector. Moreover, such policies effecti*stered multnational dfms that traditionally were domestic market-oriented to become exporters (as In thehighly suessful case of vehicles)+ This thereby forced the techological upgrading of their domesticoperations. Fnaly the poLcies created for the first tme a financing mechanism for the technological needsof Brazilian industrial and engineering consulting finns.

v. What this paper implicitly argues, however, is that these govement policies were cariedtoo far and became outdated. Restrictive armhsenh technology transfer poliies, for example, assumed thepresence of relatively unsophisticated domestic producers and the considerable eagerness of foreign suppLiersto market their latest technological wars Nearly two decades later, such assumptions have much lessjustification. Simarly, capacity creation in sophisticated industrial segments, such as capital goods andeletronics, was regarded as providing double benefits for economic developmenIt iaLlwed for importsubstitution in areas of beay foreign exchange outflow while creatng capabilities in strategic segments forthe formation of skills and diffusion of knowledge. But acrs-the-board import substitution led to exmsive

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L INThODUCTION AND OVERVIEW

1.01 Brai has the ninth largest GDP in the world, the stha largt population, and the 0fhlargest area. Its per capita Income In 1987 was USS2,241, slightly above Mexim but below Argentia,South Korea, and Taiwa. The county is well endowed witb natural resources, has a productive agriculturesector, and a mature and diversifed industrial base. Manufacturing value-dded in 1987 was US$79 billion,th ninth largest in the world, about 15% larger than that of Canada, two times that of Mxico or Korea,and almost three times that of Austalia

1.02 During the late 196( and most of the 1970s Brazl was one of the bstest growingeconomies In the world. Yet in the past decade, output growth of Brazilian manufacturing industy hasslowed significantly ( le 1.1). In contrast with the East Asian and several other newly industizingcountries, Braz's average GDP and manufauring growth were low, 2.9% and 2% pa., respectively. Inadditin, Brazis share of mufactured exports in manufactured output, 11.8% In 1987 is small, eventhough manufacd export growth has outstipped manufactured output growth since 1965.

T,ble 1.1: SELECTED ECONOMiC INDiCATORS

-3bare ofGrotb of Growl lf MeOnf

GDP GDP Mn ouwt Manuf Epodus Esps inPerCapita Out

1911 196S.80 19g"o lC5s-0 198 1o.0 1980-88 1987(USS) (%) (%) (%) (%) (%) (S) (%)

Brat 2,241.07 8a8 9 98 2.2 22.1 6.2 118

Indonesia 476.09 ao 5.1 120 13.1 13.3 35A 44.8Japt 23,195.02 65 329 6.7 11.9 5.3 32.4Kam 4,081 9A 9.9 187 115 31.2 14.7 103.1Mano 2,111.11 6;5 OS 7.4 02 9.4 21.1 27.1Thaiand 1,06330 7.2 6.0 112 6.8 213 193 53.3Thkew 1,19628 63 53 7.5 7.9 26.4 23.3 42.6

Sources: World Dcn:bp Report, 1990 (in prm) World Tab1s 19-90 EdIlutenonal FIabmal SatistIs, De. 1989.

103 Seval caues explain the countiy's inabilty to sustain growth Brazil faced a 38% decinein its terms-of-trade In 1977-8L nteational interest rates rose rapidly. Moreover, the flow of capital wasreversed, from plus to minus 4% to 5% between the mld-1970s to the mid-198(L These shocks led tosevere macroetjnomkc Instability, two major recess, and a strong loss of confidence in the longer-tenmprospects of the economy. Ultimately, the shocks brought about a significant contraction in the rate ofinvestment. The ratio of investment to GDP-after reamcng nearly 25% in 1975-fell to 15 to 16% in 1988.

1.04 Brazil's falng pfmane relative to other industralizing counties has been due notonly to 8 OntrtOn In the rate of investment but also to inefficient resource aloction and use. BegIningin the 195(s, producers were attracted to invest I new industrial segments by a combination of tradebarriers, entry egulations, and fiscal, credit and other incentivs Such policies and.intitunarrangements also shielded producers from domestic and ntenational oDmpetition. As the industrial sectormatured, these protective barres solidified, and firms becme ineag secure in thek market positnProtection from competition made fims less resilient and management less responsive to the rapid shiftsin the international economy: an acceleratd rate of innovation, Intense temhnological and commercial

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ialr, accompaied by Incre prtetonism in developed couatrl~&. At the same time that Brazirstchnob poliies geally Inibited ntenadon telog transer, the technological capabilities of mostlocal producers were enhanced oy marginall by the support Infraructwe

1.0 1hs paper focuses on technological factors behind Brls falteg compedtive poddonand the role of Bil's nnovation system he innoa yste Is here defined as the network of agents,and set of policies, and Wntutions that affet the introducdon of technology that is new to the economy.Since in the vast majority of develDoping countres technology imported, the novation system is defnedvery broadly to include polices towad arms-length tenology transfer, intellectual propery rights, impora-tion of capital goods, and direct fogn im ent. Te innovation system also compries the network ofpublic and pdvate institutions and agents supporting or underting scientific and technoylgical actities,including research and development, dffusion and creation of technical human capitaL

1.06 Section U brefly d _cuss Bzil's competite status In world marwks and suggest thatits faltering position is related to the limhed domestic technological effr of industrial produces Sectionm shows that the modest aure of these efforts bave not been offset by subsntial technolg imports,whkb have been resicted by regulatoiy acostraidts on arms-length technolo tansfer, direct foreigpinvestment, and capital goods Imports. Although some of these restrictions, in combinatio with govep mentfinanca support Induced frms to eae in technolgcal activities, relatively few producers were able toapproach the international best-prctice ¶rontier in the 18L

1.07 In view of the modest technologia actwities unetaken by local private producers andthe Ihmited inkows of foreign techokl, deveomnt efforts fall on the shouldets of the public sector.Seton IV notes that 80% to 90% of R&D pentures have been undertaken by the Government.Unforunately, dispersion of these public ctr R&D effort, and weak linkages between public R&Dinstitutes and the producdve sector, have meant that the fow of useful techologl serces has not beencommensurate with the volume of public setor reoroes alocated to technological activities. Pnaly, inhuman resoure formation-an area in which the public sector role is critical-weak investment dedsions haveundermined the creation of technologil capabilties for the ftu seection V presets the papeesconclusions.

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- II. BRA'S COMPETITIVE POSION ANDTHE TECHNOLOGICAL EFFORTS OF BRAZILIAN FIRMS

A. Brazil' LIg g luteratlonl Competitvenes

2.01 Brazil's competite position in the 1970h Improved siganficantly. Between 1970 anid 1980Braz expanded Its world mar*et share in 83 of 93 IndustrI segments (3-dgt SJTC categories) with positiemanufactured exports (Annex Table 1)Y Moreover, Brazil had an impressv record of markt divesificationand product diffrentiation in the 197I Between 1971 and 1980, in most machinery and transportequipment segment-and in shoes, textles and fbers-the number of countries importng from Brazilinceased, and the number of producus eported in each goods categoy expanded. In many categories-such as office machey, boats and ships, aircraft and textiles-the eport cmposition shifted to highervdue-added productsY

2.02 Slune 1980, the competitive dymi of the B_azlan economy have dhmged substtially,with constant or dedining market shaes In 46 of the 93 relekat SfTC segments, including technologiaysophisticated areas such as eic machinery and Instruments (Annex Table 1). The only significantexeptions were aircraft, telecommunications equipment, and electric distbution equipmenL Moreover, Incntrast with the 197(b, when 20 of 26 segments in which Bra had achievd a rvl comparativeadvantage-Le., nomalid market shares greater than one-increased their shares, only nine segments didso in the ed 198-7F Virually al non-trational and non-natul resource-baed manuficturedproducts had their gsas rever Surprisingl, this revera occured in nontaditional products sucit astexles, garments, travel goods and handba, in whki Brail ould have expected to maintin its competitiveposition.

2.03 Brazi is now saddled with many fntemationally unompitie segments, their numberhaving grown signifiantly since the eary 1980s. A study of 67 manufcturIg subsectors reeas that from1983 to 1985, 45% were nternonally ompitnve (that Is, the ratio of domestic to international prices waslss than one) and 7% were margly competitiv (domestic-inteational price ratios between 1 and 1I).A similr comparison shows that In 1988 only 15% of the subsectors were ceary compettive, while In 12%

Market share is defined as X where x is the counts exports of sood I and Xw is thewrld's exports of good i.

See J. Tavares de Araujo, 'Mudanca Tecnogsca e Competitividade das Exportacies Brassle deManufatr " IEWEAIIUFRJ, Texto paM Disao na 1982, Table Il

mThe norized market share index is defined as (XIUX)(X1wIXw), where Xi is the countrys exportsof good i, X is total ontry exports, Xiw is the world exports of good and Xw is total worldexports; hence, the share of a pardcular good in the countrys exmrts is nornalized by the shaeof world exports of that good in total world expors. The Index is quite sensitive to the competitiveposition of individual subsects in the national economy, and hages in the Index are indicativeof shifts with respect to the world pries.

4 The only major exception is explosive o cnial products, wbich continued to increase thdrnormalizd shares in the 19W( and showed in 1987 the highest "revealed" compuatie advantage.This category is belved to contain many arms expors

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of the casesmpetitiven was marginal. bes studies sgest that the poportion of fuly or marginlycompetitie segments fell by narly half (from 52% to 27%) between 1983/85 ad 1988.

2.04 Additional evidence of a deteriorating wompetitie position comes frm a 1989 survey ofthe views of 550 major Industrial produes Altho most Industrialists judged the Brails Industrialsector to be more efficient than at the beining of the decade, nearly 65% of those Interviewed alsopereived the extent of modertion as "Insufficient' to keep up with the Interational price performancefontier, wherea only 3.8% thought that It was -quite adequate.#

B. The Scope and Intensity of R&D Activities Among Industria Finmn

2.05 The lbility of Brazilian fims to keep up wit the international frontier is a reflection ofa highl heognus industial structure, relatively few competite producers and limited technologicaleffol Bra's lae and diversified industrial base-tbe result of a long process of Import subsUtution-isinsufficiently 'deep." Relatively few firms are in a position to consolidate and expand intenational marketshare on the basis of substantial gains in productivity, continuous improvemets in product quality andreliability, or devlopment of new designs Most produces have based their market position more onextensve exploitation of natural resources and reliance on low-wae labor than on the qualit andproductivity of labor itself and the Introduction of new or better producs.

2.06 Evidence strongl suggest that R&D, as a formal actvity, is undertk by relatiely fewfirms. In the perod 1975-79, only 1,500 industral fim or 07% of a universe of 210,000 legally establishedproducers, conducted formal R&DF Even within this universe of 1,450 priate fims and 50 in the publicsector, R&D expenditures are highly concentrated. Data from a 1983 subsmple of 1,118 enterprises showthat public sector fims accounted for 62.6% of budgete R&D outss, with edt producers resposible for

See J. Tavares de Araujo, L Haguenauer and J. Bosco Maciado, 'Proteao, Competitvdade eDesempenho Exportor da Ewnomia Brasikira as Anos S0W' Revista Brasileira de ComercloEaiori! ano V, no26, Novembro/Dezembro 1989, and Honorto Kume, "A Poltlca Tarifda Brasi-elra no Periodo 1980-85: Avalia;o e Reforma,' mjjeo 1988. IL Kume's 1988 price comparisonswere for 88 subsecton On the basis of a representative sample of 715 products (8"igit BTN cas-sification) of the IPEA-FUNCEX data base. Intemational price comparisons tend to present wellknwn problems of choice of an appropriate exchange rate, and comparability of products differen-

tiated by quality and performane. Yet such price data can be suggestive of broad trends in acountrys competitive position in world markets.

Al See Confedera9no Nacdonal da Industria, Competitividade e Estrateaga Industial: a Visso de UderesIndustriais Brmileitos Rio, 1990.

7J In 1985 the top 254 eporxtrs of maufcured goods were esponsible for 70% to 80% of totalmanufcued expors Tbese producers comprise approximately 6% of all medium and WVge firmswith published balance sheets and less than 3% of al estbimn with over 100 employees. Inaddition, a number of smaller fims export through tradig houses; these fims are concentrated inshoes, cast iron, steel, and autopa Overall, however, exports are undertak by that nawrow setof large producers in meta-mecbanlcs, chemcals and petroemcals, and traditional segments.

A( See J. Nunes, 'As Forcas niboas de P&D na Industria Brasleira, Revista Brasileira deT efl~IQgI~ Vol. 16, nZ 1985 Thds information coma fom fltms' Income tax returns.

or half of the total expenditures Only about 25 private industrial groups were responsble for anadditonal 17.4% of ependitures (Fable 2.1).

Tale 1: R&D OUILAYS IN BRAUAN INDUSTRY, 19 3 W

Nature of Ftirm P of Total Outlays(iS)

Pul Seeo Entrpes 626Pivate Groups 17.4Prae Flm Faeud on Indidual Maret

Source: I 11aully, Emprs Nacoalud-Panmam do Setow Elnvearlal em 1983, *Bmsilelra do ensai. vol.15, n3, 1984.

W( 1,118 firms, of whkh 43 wer pWbc e _tm and 1,075 prvate producers. Firm Ithe .ectdc machinay and madeto-odr capital goods ubsectm were not included InIb study. As a result, the percentage for public enterprise I biased upwards.

2.07 Me smallne of ndusty-related R&D In Brazil also is reflected In the distrution ofresearchers (Table 2.2). In 1986 there were 52,863 re sarcher out of 3.5 milLon college graduates, arelatvely low propoinu the ratio of researchers to population was 4 to 10,O-whereft in developedcountries the number is about 40 to 10,000 Inhabitants. It is striking that 91.6% of researchers worked ingverm nt, the majority in publc universities (62.0%). followed by specialized S&T Insttutions (20%), stateenterpries (3.4%) and other agendes (6.1%6).

abk22 DISMIRMON OF R ARWHRS ACCORD TOD PLACE OF ACtiVITY1986

I'-titution -- TOW Doctor'ate

No % No. % 1

Univerties 36112 683 9,952 6.6(Public U ities) 3275 62 ; a. a

Speaize ST Instito 10,856 205 1,38 11.8Go _enmet Agencies 3,203 6.1 82 0.7StateEntrpise 1,811 3.4 38 0.3Prvate situos 727 14 60 0.5Prvate Ffrms 295 0.6 15 0.1Other 111 02 -

ToWa 52,863 100.0 11,492 100.0

Sw=ron G. Martns and R. Quefro, -0 Perta do Peaqulsador ner," Revist Bmsilefadsiqj~a. VoL 18, No. 6 Septmber 1987.

y2 ' These are Petrobras (oi4 and petochemicals), Telebw (telecommunications), Electrobras(electricity), Nuclebras (nuclear energy), Slderbras (steel), CVRD (minerals), Embraer (airplanes),and Cobra (ltfrmatics).

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2.08 OJ8.4% of s4rer s wem I u*pnjobs. Mo of themk to privateunvesidea (635%). whIle rtiely few whel in p t rea InstudtIonm (0O%) or other agenis(0%) PAr ly not w s the mInut shar of resc In private firms (O.6%) Even lnludingstate enterpses, the pentwage of R&D pedn emplyed by the productive set s moest, 4 nfor less than 4% of the to

2.09 Information compled (a the mid-19o ultec ta R&D continues to be underatk bya narro st of firm; a core of 366 fims can be rega as -R&D acdWe (able 23). As exted fomIntemationa ueience_ coo rlnteusv segmen sch as electroi, vehices and thechtWik t a heutl chaster ontain the largt share of ftms active in R&D. Converly,segments sch as food and beverages te , grments and ootwea, leather anid wood product haverehtve few R&Dlengagod flrmswith capital goods and meWt Wication In bei weu

T8lt SCIORAL I)STRODTION OF WORT.Or4 NE11D AND R&D ENOAGED BRALIAN FRMS

R&D eave %atIndntSW &caa R&D ad[" R&D # Zt aetwe

ap itm s o a Tota bf am

I s5td nbo ma. 24 17 7 S17 46U Metal FabdoW 9 3 6m Caa Goods 9 7 42 419 SI iIsIIV VeNd.' 1 12 5 70 24.3V Auopas 12 8 4 30 8.6VI RuWbberoPm 3 3 0 Oa, avI 'Ektroal 90 4 86 258 34ViE Petiocbec.b 34 12 22IX amkds 47 8 39X Par- 8 0 8)ai Pba,ue aeu - 13 0 13 635 IV I"XII - PUlPad-Fa" .i9 -- 4-- - S 31XI N0*4Vetalfle-wne 12 0 12 21 S.2MV T_i, Gum., Fotw 8 4 4Xv LdberGoods,Wood PsI 4 2 2 7i f S7fXVI FP4ad and wuBeFs 24 S 19 712 3.4VII O0m 3 0 3

ci t .V 11 47 64 1145 9.7

C2 EIwiataisVI 90 4 86 258 349

C3 Vilm-X 102 -- 2D 62 43 16.1

Ca ThdhammtXIVXV 36 1i 25 1469 ',25

TOTAL 366 8 278 3869 9.5

Sowm Own c_mp ad. of R&D enga hosed on bfmmadm km ANM (Natona Amadatw of Idatrial R&DCaM= ft IsdUte of ldMEm ulof do Fedwu Uuwly of Rio de iaadm ankdacommnt of R&D atvIry by hadMifd m%l ln

ie Dranm.fan. de Cacs data of fim cqxa1lngam $6 muliaIn 1965.y Tbe nlm of =t_ to aW maufuetuaM rw_fb pbW bbAl sbdet. and fa Gaa Gu eethntiD

hp..1987.

gdot U ndL9i Indudna VIIJXLg/ Inudesa-XIV.X

I lbe limited pardcipatin of R&D pnoned In te productive sectr Is ev more anuataed intms of eearche with docora degresL e sbae for the poductve secr Is 0,46%, Mon inpubic eateprise R&D labs.

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240 Among R&D active fins, 88 are major eXpot, most concentrated in steel vehce,petemicals, chemials, and autopatts Some of these ane world class producers In sophqbited sens(such as aaf, misles, hig-peoma pistons, ad specia allos). Substanti producto design andmarketing experience, combined with purposefl R&D effors, result In thei compedtite strength. Anumber of R&D acive produces are multiational firms, mostly In the metal-mechanics industies(paticdarly vehides), with some in rubber products and petrochemals Their R&D efforts were notnecessarilY undetnaken in response to expot requirements (althougb many wre drawn to export marketsin response to strong govemet inducements-such as the BEFIEX export program), but to local marketdemands (eg, for ethanol-based engines or lge hyroeltk turbines). However, the majority of R&D-engaged exportes are those that combine Bra's traditional sources of compratie advntage (abundantnatural resoures and ixpensive labor) with a measure of product development and proems impemntsto stay competitive In world markets 1y are producers of steel, autoparls, pulp and paper, chemicals,teles, and food and beverages

2.11 Most fim that carry out R&D but do o export are in electronics and capital goodsThee are segments with taditionay high R&D intanslty, as suggested by Inerational exper,nce, andthat since the mid-197 hawve expanded rapidly, behled high prtconist barrier Although govenmentpolicies and situtional support mehnism have induced these producers to undertake substantial R&D,such acivity has been Insufficdent to close in the techological foler. Moreover, some efforts probablyhave been midiected and wastul Continuouy hih levels of protection have allowed producers to faUbehnd best practie without ben penalized by competlo Acrostheboard import subsitution also ledto excessive product tatio, with the dispersion of techoo al resoures. As a result, low velsof intuaindustry and intaflrm specalztion precluded these producers from reaping economies of scale inpwduction and developmt of now products

2.12 R&D Is just one dimension of firms' technologil actities, however, and posil notthe most important Producdo planng and oraon, troubhootg resca aw matiasadation, and qualty contml ae oth teologial tasks that have a direct bearig on firms' cmpeti-tvynss. But the fact that so kw firms were eaged In R&D is sigficnt, as fims ted to fwmalie R&Dactis once compedtie pressures require new designs and major improvements in proon poceses

2.13 Moreover, despite the fact that many indust ms are enWed in minor technogicactivities-rangIng from the desi of tools to improvemts in plant layout and production promesses-mostof thse activties have had only lmited impact in brngg fim closer to best practicaM A detailed studyof these frms' technologkal behavor has shown that mateal inventory was monitored by over 92%of sampled produces, but more than 81% did so manually. Similay, nearly 93% of fims were epgagedIn quality control, while just 28.8% employed modem metods (such as stadstical process control).Y Atthe same time, only 23.5% were commitd to deveoping new products in a systematic way. Imitaion-through mmse engineering or hiring away competitoS-was peceived to be the enal rule in industry.lTese fndings suggest that most technology a in Brazilan idusty consists of mior innovationsand adaptadons- uet to cater to a rtWively ptected domestic market but inadequate to sustain Itscompetitive position in word mares

I/ See Helson sxap and Virn Matsco, e TenolUgbo da lndustral Brasieir unAniise Exploratoria,' Textos Par Dcmo latemna no. 162, WPESIIPEA, February 1989. Thestudy reports the answers to a detale questionaie on the tchnologi acdvitis of the Brazilianindusuty from a 1980181 sample of 4309 industral fms opeating 7156 plants.

jgI IL Bragp and V. Matesco, gpL pp. 12-14.

js/ H. Bra and V. Matesco, opg, report that over 67% of respondents pointed out that copying ofproduct Ines from oDmpetitors is a common prce in their sector.

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2.14 In sum, the evidence assembled In this section points to vety Umited commitment byBrazilian industri frms to R&D and to technological development In general. As shown in the nextsection, such lmited efforts are not offset by a regime to facflitate technology imports. The effectivenessof Imported technology is hampered, in any case, by the weak absoptive capacty of Brazilian industry.

Box 2.1: METAL LEVE AND rTB LONG-TERM COMMITMENTTO TECI INOLOGICAL EXCELLENCE

Metal Leve is a case that illustrates the trajectoty of a very dynamic domestic privatefirm committed since its Inception to technology development. In 1950 Metal Leve began 1950producing pistons for local subsidiaries of multinational vehicle manufactures in Brazil (Ford,Volkswagen, GM, and Mercedes Benz). Its initial focus was on quality control, combined with wellstructued technolo transfer programs, involving engineering of piston manufacturing processes.Metal Leve entered the international market in 1965 as a way to use up its excess capacity, andinduced by fiscal and credit incentives. Export-output ratios rose to 8% in 1970, 17%-20% in the1980s, and 35% In 1988 The driving force for technical change during the early period was foreignbuyers' demand for high quality. Efforts at quality Improvement at Metal Leve were part of amanagerial culture that continuously emphasized the importance of best practice techniques andmethods. Effective absorption of imported technology was the result of prior and detailed studiesof the processes that were to be transferred, intense training in-house and at the premises of thetechnology supplier, and systematic adaptation of the technology to local conditions.

In the late 1970s the firm began developing new products to oDmpete in markets thatrequired Metal Leve to supply designs as welL! In 1979 it set up its own research center withfinancial assistance from the Agengy for Financing Studies and Projects-FINEP (US$2.2 mitlion),spurred largely by the challnge In export marketl By 1988 the staff of Metal Love's R&D centerhad grown to 230, and the company spent 2.7% of its sales on R&D. In addition, it contracted outresearch to local R&D centers and universities. In 1988 Metal Leve set up an Advanced TechnologyCenter in Ann Arbor, Michigan, as an extcnsion of its Sao Paulo R&D center, motivated by theneed to be better informed about new developments and the future plans of its Americancustomers.! In September 1989 Metal Love opened a manufaturing facility in South Carolina toproduce articulated pistons for diesel engines (a Metal Love innovation) to equip Caterpillars newdiesel engines (to be introduced in 1990) and also cater to demand from Volo and Cummins.

The case of Metal Lve (like that of Embraer-see Section IV), Mustrates the systematic,step-by-step technology efforts needed to become an internationaUly competitive producer. It alsoemphasizes the importance of export markets as a source not only of technical Information (suppliedby buyers or gleaned from competitors) but of continuous pressure to improve performance. LikeEmbraer, Metal Leve also was quite successful in using Brazil's institutional system for supportinginnovation. It maintains close interaction with FINEP, as well as its colaborative ventures withuniversities, technical and research institutions. These arrangements suggest that a motivatedmanagement with long-term commitment to technological excellence and with a record oftechnological and commercial accomplishments, is able to tap existing technology-orientedinstitutnal, human, and financial resources effectively.

I/ Between 1970 and 1980, 31 new types of pistons and S9 types of a_ebeaiV wee int_dcd, hInuding hay dill?pist for ar dIesl engines and a pecal line for alool vehides

yt Te tepo4ted cest of the new center ws USS3 plllion, 90% of whkb was finced by FINEP. See ceta MeJtFedbny I, ' -

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m. TECHNOLOGY POuLCIES

3.01 Explicit policies for idustril technology dvelopmet in Brazil have followed the broaderndustial policies of the Govement. lhe acquisition of fotreg technolog through ans-length technologytrnsf, capitl goods imports, and direct fegn investment bas been strony Influenced by the gvermentobjective of minimizing the outflow of forign exchange and promotig import substitution. Similarly,flancal Incentives to foster R&D and boost the engneeng consultng capablities of national enterpriseswere foused on Import-subsdtuting acdvides or nadonal producers that were cmpeting In areas dominatedby muldnatonal producers.

A. Arms Length Technolok Trausfer

3.02 Brazils curret technology tra regime is designed to impme the brgEining positionof national firms and mmie fore echange outflow. Sine 1958, the Cental Bank has controlledroyalty payments and has established that the maXiDmum royalty should be 5% of net sales. The Goveran-meat's main concen was that foreig fms were using technolo taner paymemns as a way of remittingprofits Subsequently, In 1962 the law govening foreign Inmestments in Brazill established stict controlson tehnolW tansfer, whkh are sti in effet. Th law requird that foreign payments for technologytansfer be registered with the Central Bank It also prohibited tenolkgy transfer payments betweensubsidiaries and their paent companies and between joint ventures and freign partners who held more thana 50% stake in the venture. Me rationale was that the parent firms already earned a return on thetechnology, thtough profts, and therefore should not be allowed to deduct technology Uesing payments.The law maintained the 5% maxImum royalty rate, and also rsicted deducting technology transferpayments for fiscal purposes to a maimum pedod of five yeams.

3M3 In 1970 the Natonal Institute of Industrial Propert (INPI) was created. Among otherponsibities, it was to regulate technology traf (taking over from the Central Bank). Techology

tansfer agreements were divided into five categores Each agreement must be registered with INPI as toterms and payments authoriad, period of valdity, required Brazilin pardidpadon, and specil proviss,depeding on type of cntract. Royaltes for pent Ueesm and tradeakrk lienses may be paid only If thelieses are registered in Brazil Moreover, the intelletual property reghme in Brazil does not offrsignificant patent protection in the areas of chemis, ph, metal alloys and miures, and alloysin geeraL One of the principal rationale of the Brazlian property rights system is to protecttechnologiclly less capable local firms against potentially predatory behavior by foreign produces and toreduce the Qost of appropriating elevant foreig technology. However, a frail intelecual propery rightsregime cluding weak trade secret proecdon possibly dets foreig firms fmm transfering or using lcatheir most advanced or up-to-date technology.

3.04 Induist & technology liense arements are ess onerous since such licesing does notdepend on INPrs regitering the patent or trademarkif However, INPI treas such an agreement as asale: after expkadon of the contract, INPI rerds the liensee as the ower of the technology. In additionthe partes must satsfy INPI that the technology

lI/ Law 4131.

1 f AC. Cardozo, 'A Implantaio de Leis e Regulmuentos Sobre Transferencia de Tecnologa: AEixpeenciia do Brasi, mW mex 198&

JW For more information on the regulaions covering the different types of agreements, see IL Rosenn,Regultin of Foreign Ivesment in Bral," 19&

* 10.

* Is rot avalable domestically ad that Its transfer to a Brazilan lcensee is In line withnatona deveopment objectives;

* brIngs real advantages for the dereomt of the dustral sector,

* improves product quality and allows or subsitution of Brazilian products for imports; and

* allows the Ucemee to absorb and muter the technolog within the letime of the contract

Registratio of _tecnil and lndslrlmal nape _a e depends on coanincg INPI that theservices are not avaiable locW and that there wil be short-term benefits to the sector. Ths might meanproducing a quality product with expot and/r impot substution poIbItIes. For techal sericea _eememta INPI must be satisfied that the seves are not available domestially. It also must approvethe detailed schedule of payments for foreign technicians.

35 Mmum appoved royalty rates range from 2% for plastic and rubber artiles to 5%fow electical equipment* Those roealties are based on net saes, wich can be consideably wer thantotal saleLff Royalties for trademarks have a maimum of 1%. In addition, royalty payments are taxdat a rate of 25%, and that tax is counted ithin the pecfied maximum royalty limits The maximumduration is five yeurs, with a possibl extension for another fie years, at the dicretion of INPL Also, asnoted above, royWalty payments are not permitted between subsiarie and ther parents or between jointventure fms and foreign partners holding more than a 50% stake in the vture.

3.06 Technogy contracts prohibit restrie clauses lnvolviln limits on exports, pridngguideline use of tied inputs, purchase of other technolok; secrecy about the technology after expiationof the contract; and obligatosy transfer to the seler of improm ts made in the technology by the buyer.MTe seller, however, is obliged to pass on improvements made to the tecnolgy after it was sold and islable for any lega action that originates because of defec in the tedcnoloy or intelectual property rightinfringements, even by third partes. In additon, fui disclosure of al technica data is requied, andengineedag drawings must be provided, as well as al informatin no essay to update the know-how. ITelatter requirement is of extreme cncern to many technoloVg suppliers who fear that teoloy informationmay be appopriated by third pates.

3.07 The impact of INPrs attempts to control technolgy import bas not been evaluatedsystematically but may be quite sgniflcanL Between 1972 and 1987 more than 23,500 contacts weresubmitted to INPI for approvaL Of those, about 18,000, or roughly 75%, were approved. INPrs apprvrate has followed a generlly downward trend, the result of its striter control, especall regarding tecnicalservices (Table 3.1).

fL/ In 19S3 INPI issued Normative Act 64 whose pncipal objectve is to strengthen natonaltechnologcal capability. Under this Ac, INPrs approval for a technology transfer agreement isconditioned on whether the recevn firm has an adequate program to assimilate the techologyand amy out R&D to grain great technological autonomy. The amount of the investmentrequired depends on the fiancial situation of the Braiian ntractor and the amount to be paidfor the Imported tecology.

wI However, it appeas that since the New lodustil Polc was iniated In 198 royalties as highas 10% are being permitted for some higt-technolgy sectors such as softwar See K Rosenn, o

.12/ Net sales is calulatd as total sales minus duties, taxes, Impored inputs and cmponents,commssions, transport, insuane and other deduction.

3,1 mN APIROVALS OF ¶BCHNt)oOY IRANM COMRAC1\ ~~1978-19617

V ~~~~~VBAR CONTRACIS CONIIRACIS, PCENrAGES'RESBNTED APPROVED APPROVED

FOR APPROVAL

1978 1473 1451 9S51979 1456 1416 97731980 1576 L332 84.51961 1426 1178 8261982 1438 1135 7891963 196 969 74.1984 907 786 86.71591 1043 769 73.71996 1185 865 74.71967 1S15 1213 65.TOTAL 13615 11134 8.6

SOURCE: Carow (1938) ted an DIN da

3. Fiy perct of all teology contracts appoved betwee 1978 and 1987 e conentratedIn four of the 70 economic sectos that INPI uses to clasfy contact (mechanical, metallurgIcal, chemicand minig). Whie the share of most of the ladg secwts hae been lng, eleonc and delcamateril a expandig rapil, with the propo of appvd cons i om 4% I978 tomore than 15% in 1987. lbIs party reflecs the ased impoan of o technolor purases bythe electon ind , in direct fort has bes severel rsted i umbe f itssegments.

3.09 Data on technolo paymts are avmsble for 1979.lM7 (Ilb. 3.1), showing paymetsof US$2.1 blion during that period. Rogty 81% of the totl was for eialid tehi services evecthoug thei shar fl parke ower the period. About 15% was for unpatented Industrial tecbnology(ilnduding 7.1% for npaed indastrial techn for maet40rder-cptal goods). lhe smlest share(Just 3%) went for patn and trademk likeses Thales _undstate the actual Ins sine payme tsby subsidia to their paret compani are not allowed. An almost coDuus decine in the valuesrecorded is notable and this fll is nOt e aid br the ecnomic reoosio alonedoI

3.10 It is not dear to what extent INPI has imprvd the bargaining posto of domestic frmsand helped them obta dol ore cheaply, bowe There are various reasons tosurmise that INPrscotols may hlve been ddelterio to ntiona Int in two repects. Itr the regulations ateagainst national firms becase these firns must pm ther conts thrwp a bureaucatic process forapoval In contrast, sudiaie of o n mpaies hae direct amm their parent compane'tenoy and an tnsfer the cology egm It the amot deduct the cst Ibr tax puposes Semo,fDi fDreign teology supplie, including investo resicte transfr nuols as well as inadequacies inthe direct foreigd inestmet regime (e.g, not being able to captliz technoloy contributions or to deducttehnology fees) ma It not wortwhile to liceme or even use ther best technogy In BraL issituaton is awaated by the lack of adeqa pmotet from the itelecu prert regm The netrest Is that Brai may be receving obsoete or outmde technolog.

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Tab32 PAYMEN73 FOR-TBCHNOLOOY hANSFD CONTRACT 1979-1987OIn im of wta doom)

Yaw Paat & 11 Indb Ta!nl Totalbaew CO _PII" T _d" 8ervlem

1979 9 6 11 287 3131980 12 11 14 284 3211981 12 18 13 234 2761 5 17 10 218 240

- l§ 12 a10 14 182 2181984 9 8 8 177 2021985 S 21t 41 18 1751986 2 20 43 11 184'1987 3 39 26 106 174

TO`TAL 69 1SO 179 1705 2103

Somz AC. Caw am e bdL d on Anusl Repots of the Cal Dank

L nImports of Capital Goods

3.11 Aaess to the most poductve capita goods Is citcal i an ecom Is to benfit frmembodied advances in Wchnology. B1a1 has relied much less st growing East Asian ecoomi onimponed capital goods for acquring technolog (k ble 34 )Moreover, the rado of capital goodshlmports to gross domestic invesbimn (01)) ha decased Mac 1g90 Thi rested fom the polc ofpromoting the local capital goods indlUStI through trade asiction aon imports and special financialincentives for lal production. Emesive protectio may be hampeig the International mpof loca iustry.

Table 32 UPOR73 OF CAPITAL GOODS AS RAno OF ODI

1965 1970 197 191i ism 1986 1987

Hass Kan 1.949 3.76 2962 2.24 4.073 326 3848Soth Korea 0991 0902 I 1.119 1114 1.0M4 1.046mabysa 1.768 1.488 1.435 1.441 1AS4 1.541 1A36Sngapore 578 3357 3.592 4.42 3A489 3801 4.140Thaiand 0889 0.714 0.824 1.112 1129 0.944 L041

Brz 02S1 0327 048 0.455 0376 0299 0.259Medeao 0352 03312 0312 0.370 0.400 0390

USA 0.181 Q270 Q442 075 0Q559 0.574 0.91

Sono: Own _ bi anl UN trade data and DESD ypam

Note Cal goods wae defed as te followng Sr RevIin 2 epegom:, 711, 2, 714, 75, 716,717,718 719 (m 7194n) 72, 72Z, 72 7249, 72i, 729,7 96,727,729, 731, 732 7323, 734,7325, 7327, 733, 734, 73, AND 861. be r vadoen the ta a gwe tr tha am fr cme of theAam conneAs bme tany of the imptd, capit p we _daWane as pal of am pred

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3.12 7h restrci capital goods Iimpot regime bas had significant Impact onas wel So many manustues in many speciazd product areas (ven more from in the U.S. or Japan)has meaut an overly diversied capital goods ndusy lacing the economies of scale or specalztionIecessary to reduce cOs, keep up with new technologi, and stay compettive. Exessive dependence onmore expsve and often outmoded locally-produced capital goods, espealy in electronics and processeontrol, bas placed the dowtream user industry at a dadvantage with respect to Brazis internationalcompettos

C Foreg Investent

3.13 Brazil's foreign ivemt poly has rflected the gvrmets objtve of attractingcapital to specific industrial segments and (after 1972) of obtaing eWpot commitments from Individualfims. TechnoW development has been of secdady Impoace to import substitution and balance-of-payments consierations Although the Inflow of det fore investment (DFI) bas been coniderable,Brazil may not have been receiving the most advanced technlogy. he orall effect of restricon hasmade foreign investment in Braz, parularly instment with a high technology content, relaively lessattractive than In other locations*

3.14 Profit remitances are limited to 12% of the original Investment plus reinvested eamings./In addition, the original foreign currency vwalue of the inmestment is not correted for inflation. which meansthat the origi base for remittances decrases in real terms over time. Fthermor parent companies maynot rie royalty payments for patents and trademak from their subsidaies and may not capitaze theirtecnology as equity contributds to the investments.

3.15 For minority joint venture partnes, there are also arbitry and strict limits on maximumpayments for technology trandsr (as noted above). In addition, the foreign Investor who brngs technoloto the joint venture has to pay a 25% tax on thi part of his capital contribution to make it paut of hisremittance base.

3.16 Still, the foreign investment regime Is quite open. In genal, up to 100% foreign ownershiphas been allowed in most areas. Until recently, the only sectors closed to DFI were petroleum exractionand refining, orain segments of the inofmatics industy, communiations media, and most domestic

aspon, although there were also some rmttins on mining, banking, insurance, and other finandalacitieS. The new Constitution adopted in 1988 has taken a more nationalistic posture toward DFL Itsmain restrictions were Ihmiting foreign control in miinng, mheal exploration, and production of electricpower, and prohibiting foreign oil companies frotn engaging in oil exploration through dsk cactsHowever, the new Govnment that took power in March 1990 has announced a more open poliy towardfore investment, and a posible reduction in the scope of resrcto in the informatics sector.

3.17 Bua has the largest stock of foreip capital of any developing country. Registred foreignInestment was US$27.9 biUlion in 1987. Almost 75% of all foreign ivestment is In manufctu 20%in servioes, 3% In the extactive mineral industy, less than 1% in agriculture, and 2% in other actties

ZI See IC. Rosean, pu it.

D/ Profit remittances above 12% of registered capital are subjected to a 40.60% supplmental incometax

;22/ Thi causes tax problems for US. companies becaue Sections 367 and 382 of the US InternalRenue Code force companies to include impute roylies on tehology transfens in their US.income for tax purposes See IL Rosenn, op._cit

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Within uctuig, the subsecors acounting for the: larst shares of foregn investment ge:automobiles (11%), basic Obeicals (9%), mechanical (9%), and electrical and communiCations (8%). Thlparticu concentration occurred because most of thi investment came to lrail under specific sectoralprograms for automobiles, shipbuilding, capital goods, and chemials. Such programs provided fiscal andfinancial incentives (as well as protecion in the local market) In exchange for perfomance requirementsperaining to ivestment volume, local content, and exports.9 At the same time, foreign Investment inprofessional and industrial electronics, and data processing and telecommunications equipment, has beenlimited with podsible adverse impact on industrial competitiveness

D. Financial Incentives for Local Technology Development

3.18 Financial incentimes bave been the main instrument for encouraging the development oftechnologc capabflities at the firm level Since 1973, FINEP (Agency for Finandng Studies and Projects)has used subsidized loans, risk-sharing instruments and, to a lesser extent, equity partcipation, to fosternational firms' tenological activities. In the perid 197349, FINEP contracted 1,761 technologydevelopment support operations for approximately USS810 milloi The focus has been on the devlopmentof import substitutes (as in chemicals and pharmaceuticals) and producs that would allow national frmsto compete with foreign-owned producers in the domestic market (as in capital goods, electonis, vehiclesand autoparts). here has been a growing emphasis on establishing R&D and quality ontrol labs anddeveloping and improving products, process and tools.

3.19 Although there is not enougb information to evaluate the impact of FINEPs programs,It is likely that most national firms with significant R&D activity have benefitted from FNMEs assistance.Nonetheless, the efetvens of its actions has been limited not only by relatively narrow lending criteria,but by intenal bureaucratic obstades to timely operation, and the difficulties small, technically-based frmsencounter in quahling for its progm Larger frms, on the other hand, incraingly find FPNEPs financialcapabilities too limited for their innovation finance requirements*

3.20 In condusion, the technology policy regime in Brazl has been charaderizdw by objecesother than the aqWsition of technologic capabilidies that would allow firms to become inernationalycompetitie As a result, the countly has failed to attra best-practice technology via direct foreigninvestment or through arms-length transactions A combination of weak domestic technological efforts andestrictive acoess to the most valuable foreign technoogy appears to have hampered the moderizatonfforts of Baziian fims As argued in the nest section, substantial public sector inolvement in

technological activities has been a weak substitute for greater invlvement by the productive sector and amore flexible technology policy regime

The main progm was BEFEX, established in 1972. This program, initially developed for the autoIndustry, gave firms incentives in the forms of reduction of imports duties and other fiscalexemptions as well as financial incentives in return for specific export commitments. The programwas expanded to other sectors and also to national firms. In 1989 it was estimated that SD% of allBrazilian manutu exports were covered under this program.

SI Note in this respect that the value of contacted technology development opertions in i989 wasless than US$18 million, little over one-tenth of what was contracted two years earlier in 1987.

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IV. INNSTIErWRONAL N RK SUPPORTINGTECHNOLOGY DEVELOPMENT

A. B ackgnd and Current Strutre

4.01 The fist three decades of the 20th century saw the beginning of dusttion in Brazil,spurred by growing agricultwal income, the epaion of domestic trading actities, and profitableopportunities in the production of importables. Exept for foundy and metlwoldng for the ralroadnetwork and the use of steam power, there was not much demand for engineering manpower or localresearch activities, howver. Technologies generaly were obtained from abroad by copying. The difficultyof Importing during the Great Depressio and World Wu 1 senred to deepen the proces of Importsubstitution and led to was growing demand for more sophitcated technical and support services. Thibrought about the establishment of some of the At major iust reseawh institutes (induding IPI inSao Paulo) and the first unieresity with a stong emphasis on sdence and technology.

4.02 The most significant developments after WWII were driv by the militaiy, which hadreadily understood the strategic impornce of science and technology to the outcome of that conflict. Themilitary set up an aerospace engineering taining institute (ITA) in 1946 and the National Science Couanc(CNPq) in 1951, with the initial purpose of understanding how to hamess atomic energy. Neverheess,Bris S&T effors until the mid-1960s were still isolated and dispersed, with lmited Impact, except for thedevelopment of technical human capitaL

4.03 Ftom 1964 to 1985 Brazil was under mlitwy rule. During this peiod, there was strongemphasis on formalizing the economic planning prooess This included dfting science and technologyplans, establishing the National System of Scientific and Tehnological Development (SNDCr), and settingUp various speciaed Institutions to direct and finance scientific and technological development. The wholeS&T system was expanded through a process of quantitative tareting, mirrodng the overall approach ofplannig for growth. TLe system was centralized, and the main efforts were in expanding research capabilityin public sector institutes and enterprise This was largely to strengthen national technological capabilityin military and strategic areas

4.04 Since 1989 the Special Setariat for Sience and Technolo has been the apex S&Tinstitution in BraziL In addition, 17 major federal implementing agencies for S&T policy receive at east1% of the S&T budget. Combined they acount for over 90% of total allocations for S&T (Table 41).Approdmately 40% of the allocations finance research related activities (metrology, norms and standards,normative coordination, for example), and the remainder goes to postgraduate training and actual researcL

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Tae4 KEY S&T AGENCIS ACCORDING TO B)DGHTARY ALLOCATIONS 1

Agn Fbatlo Fhl 198 Budgetay A9oe.

Amot _W pCWCt

CNPq - The Natl CocO for S&T Dev. T,R 291,639 17.0EMBRPA - BS AgicuL Rmswd. Corp, T,R 200,542 11.69Secrutarlat Of Sec. of S&T g/ NA 183,903 10.72CAPES - Ow. Ag. or Paugrd. Tann TJ 139,108 &11CNEN - NaIl Counci for Nucdea Emu NAT 129,128 7.53

B#lRATfR -1r Rutal Extaion Cap 1 98016 5.77IFES - Fedal Unv and oe TeadL lst. T.R 93,842 5.47C;N -Natonl Sa CD N 89,431 5.22BMFA -Joa of Staff R 72,760 4.24Sacrutat iu, ol Mie and Energy i N 65,617 3.83INWE - hstuWe of Spac Rarh TiR 48,421 2.8PIOCRUZ - ounai InsL Owado Cn T,R 33,137 1.93Mi. of Asniwautic R 31,931 1.86DIMEIRO - Natl IstL of Meu, Stad. I, 27,178 1.58Seerazarhi ot Mm. at Jus - 25,199 1A7CEDATE - Caute for ThCh Sapw of Ed. W - 21,083 1.23Cl - Center for anaties Tedolo R 19,91 1.16INPA - Na InstL for Rae of Amazo Rag R 18,981 1.11Subtotal 1,590,644 9.75

Total S&T Budge 1,71485 100.

Sourcn CNPq, 'Recoua de Tewouo da Unbo Docao lalial, Dotso Fn, e Dqpm Reallrada 198049.may, 1989.

it T stamn for Tnlag. R for eut% D for d h of inaon, I for Intitutlal devlopmentan N for normaiv cOoILad

hf Amounts in 1987 dolgInludes the FNDCT ad the PADCr eeh fundhW 80% s I aftd r equity intment In NUCaEBRAS.

%90% for dsao sdfc equpme and rurments.

B. Public R&D Instituts

4.05 A complex and differentiated ovrnment institutinal newk carries out public sector R&Dactivities In BaziL In major areas, such as health and biolil scences, as wel1 as in experimtal physlSand chemistry, mot resourms are in the federal and State o Suo Paulo universities. Public enterprises'in-house R&D faciitis cover enea genraion and conservation oil explorto teule sialos, andaircaft develpmst. Covement institutions not attached diretly either to fderal or stt universities,or to public sectOr enterprises, play an important role in agriculture, food tchnology, Amazon eclog,biotechnology, tropicl disease researdc, physics and nuclear technology, aerospac*, and comput sciences.In additon, devlopmen efforts in various areas of engineerng and mining technlogy are undertaken bya few staeWvel institutions (the most important of which is IPT of & Paulo).

4.06 Goverment-undetaken industrial R&D has not been very effectie due to the geralyweak lnkes with the productve sector. A survey of sources of technolog in Brazilikn industry notesthat less than 2.5%* 5.1% and 3.9% of product designs tool designs, and maufauring proesse,respectivl, has originated in rerch itstiutesL

4.07 Although industy ties are strong in some cases, the dispedon of resoure through anexes number of research projecls and competing aactides hampers effbrs An example of thedispersion of a research program in the publc sector is the work program of CPqD, the research unit ofTelebras, BmIs public telephone hoing company. In 1988 CPDwas the largest and most sophistcated

m5 IL Brap and V. Matesco, op Table 2.1.

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applicationslabotory in Latin America. It employed 400 professionals directly engaged in R&D work, inaddition to sponsoring personnel from ind stty and universities. CPqD's budget of US$60 million wasallocated to a very broad research agenda, ap rodmately 80 R&D projecs in seven priority areas: electronicswitching, digital transmission, optical communications, data and text communications, satellite com-munications equipment, tools, and materials. Even adjusted for skilled labor ost differences, a budget ofUS$60 million is minute for the scope of CPqD's research agenda. Budgetary allocation would average lessthan US$8 million per program or US$1 million per project, whereas each program could in itself justifythe whole budget. The absence of research focus and specialization has led to systematic delays in the CPqDresearch chronogram and, therefore, to delays in the market launching of its applications. These delays havehad a high cost for the economy because in many cases, such as the digital exchange program, governmentpolicy prevented the use of existing, less costly, foreign technology while waiting for the local technology tobe developed.09

Bo 4.1: THE INCUBATION OF A TOP PERFORMING ENTERPRISE

Despite certain fundamental weaknesses in the institutional support network for technologicaladvanement, there are many instances of successful cooperation with industry. In these cases strong andeffective links have been forged between the public support infrastructure and industrial firms, and producershave achieved international levels of competitiveness.

An impressive case of a top public enterprise with strong roots in the public research infrastructueis that of Embraer. Embraer progmssed from a protected and subsidized public enterprise to a dynamicworld-class competitor. In 1946 the Aeronautics Technology Institute (ITA) was established to generatehigh-level human technical resources. Drawing heavily on ITA graduates, the Aeronautics TechnologyCenter (CIA) was created in 1947.Y Among other tasks, CTA was given the mission of designing an airpla-ne suitable for Btazilian cnditions. The Banderante turboprop had its first sucoessful flight in 196& Theoriginal team then trassfered from CTA to set up Embraer in 1969 and produce the Bandeirante on acommercial scaleY Five hundred Bandeirantes were produced. Most were sold internationally, and theplane found a niche in the commuter airplane market. Embraer followed the Bandeirante with seral othermodels, again focused strong on the international market}

Embraer has been proficient at using public research institutions and universities as well as tappingfinance from FINP. Its strong focus on the export market has ban crucial in offsetting development costsby perwtting lager production scale, in bringing in new Ideas for further technical change, and indemanding exacting performance standards.

/I By 1988 ffA had tained more than 3,000 eaglees, 800 of wCh wae la ghe aernaut BKd

The ITACrA gaduate _agkneesin& educadona/earcb e led to the spontaneo t of 8nel's (hit andlargest industrl bigh to pk around San Jose dos Campos. Alon with Embaer it has lead to the establishmavy high tecdnobg companie includW Avibs (mbm). Orbia (msl6s), Eagesa (muTitaly equient), Tecaa(elecurnic comauncaktion equipmat), Cmposte Tecooga (compose maials), and Quantum (oftware).

As of Februay, 1989 it had an accumD ated producion of 3,983 aIcrt.

2§/ C'qD however has been fairly -sccessful in transferring many of the products it has developed toindustrial firms for lirge-scale production. By end-1987, 75 different products developed singly byCPqD -or in association with univesities (which were in charge of carnying out most appliedr.search) and industria~ firms (generally focused on the later stages of development, such asprototyping) were being manufcurd by 25 producers. See C Frischtak, 'Specialization, TcialCbange and Competitiveness in the Braii Eectronics Industry," ndustry Series Pap. No. 15,The World Bank, Industry and Energy Department, 1989.

- 18 -

4.08 in two areas howev, govenmnt R&D effrb have been quite effective agrotechnologyand aerospace In agrotechnology, the goverment agenc EMRAPA (Empresa Braslera de PesqusaAgropecuarla) has coordinated and party executed a complex and fa ranging natioal agricultural reearchprogram. lhis has resulted In, among other things, the incorporation of previously Inferdle land througha better understanding of sofl biology and the suYcessful introduction of new plant varieties.

4.09 In aerospace, Brazi (with China and India) probably has the most advanced researchprogram among industrializing countries. CrA (Centro Tecnologbco da Aeronautca) and INPE (InstitutoNaclonal de Pesquisas Espacis) have been the core R&D institutes in this subsector. CMA, in particular,has generated and efecidvely transferred aircraft, rocket, fuel and other aerospace-related technology toIndustry. In addition, It has had an important role in the development of gasohol-based engines

4.10 Among industryorlented institutes, IPT (Instituto de Pesqulsas Tecaologicas) of the Stateof Sao Paulo is posibly the one that has forged the closest lUn with the producdive sector. Other thanIPT (and two more state-level R&D institutes-those seing Minas Geras and Baia), government-led,industry-diected efforts have been smal and not vety effectiv

C. Public and Agregate R&D Expenditures

4.11 Public sector R&D has been dominant not only in scope but in resourc allocated.Although there are no firm estimates of total R&D expenditures in Brazil-private sector outlays are notknown wih ertaity-most sourca estimate that public sector expenditures amunt for betwe 70% to90% of total R&D outlays Based on actual public expditures, a series of Imputed private and totalR&D expenditures can be construed (Table 4.2).

Tabk R&D EX?BtDlllRBU IN BRAI, 19818( consat "97 doom)

yewr ?uhic apend alf GDP PRODM TEGD? bk Tn D?

i981 966,133 253 O 0.38 0.54 0.4212 1,184,970 M Z U6 0.6 0.511983 938*7 247W500,345 038 .54 0421984 907,447 2538,14 036 0.51 A401985 1,242,271 262,347,174 0.44 0.63 0.491966 1,455,Z39 314,47,537 0.46 OA6 0.511987 1,485,363 323 0.46 66 0.511988 1A68,59 322,597.503 46 Q65 0.51

So= CNPq, Rcuros do Te da Uobe Damo lokial, Doco Fnal, e DapaRaua 190.89" May 1989.

gl For 198147 these are actual ezpeadltu for 1988, it h the final budget allocaota

I IBI Is total Imputed ae qtum on the asmumpdan that publc pedtur muak up70% of R&D outlas In SaL

Sf TE2 is total hiputed expdtume on the a th t public xpedtm mak up90% of R&D outlays in the coury.

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4.12 Although In absolute tms R&D outlays in Brazil ae not modest compaed to otherindustrializing countris, they are small in compaison to developed economies Crable 43). Moreover, aftera signlflcant Inease In the 1 , R&D expenditures as a proportion of ONP remained basially flatthmouht the 1918, wherea they expanded substantially In the fast rowing East Asian economies Asa result, absolute 6evels of R&D expenditues In South Korea, for example, are at lamst twice as large as inBrazil, although the Brazilian eonomy Is more than twie the sie of the Korean ecnomy.

Tsble R&D BEDfrlVRE IN SELE)CTD COUNTRIS(R&D Bup_ntuz In absolute tnm s nda a w p utos or GN?)

County Abslute Expend. it R&D Intenlty

Amoh Amoumt Year 1970 1977 1912 lsti Yew

BRAZaL 1448 1982 0.24 0.70 059 059 (1987) bf

Agentina 1087 1981 na. 10 0.20 020 (1982)M o gal881 1984 020 030 020 060 (1984)left 1482 1984 .s. 0Q50 076 L0 (1985)S. KOreM 1307 1983 039 0.40 090 1i8 (16)Tab= SO 1985 0a us 090 1.06 (1985)

jap 39117 1987 1.90 200 240 19 (1987)US 100823 1987 260 2.10 250 26 (1967)

Soaur UNESO, Stdsl Yeatook 1988 Par, 1989.

nd endit_ to mWmEn of 1982 dabomb Avge betwee the low and hih atmas of tabe 6.1.

4.13 Is Brazil devoting an insufflcient amount of es to R&D? It should be emphaszdthat even if R&D outlas are sagnt, t certainly does not imply that Brazil is spending too little onscientific and tedhnological devlopmenL In the absence of bkde about rats of return in R&Dcompared to other ecoomic activities, ot much can be said about the optimal level of R&D expenditures.On the oe band, a number of cowtres that are aocating bWger amounts of resources to R&D are notneoessari raping greater benefits. For e.mple, between 1977 and 1985, India doubled its reative outlaysto R&D witout major gains In terms of tecologiall capablties in the producte scto. On the otherhand, counies that hae Inppved el compeie position have also been inresing ther R&D effortson a systematic basis More Important, most of these efforis hve been underken by the productive sector.

4.14 In contas, not only the level and intensity of Brazil's R&D expenditures have been flatsince the begifng of the deqde, lOut more Important, most R&D is both financed and undertken by8erment (Table 4.4) At the beinning of the decade, n t was responsible for 67% of R&D

fIing and ndusty for only 20%. Esumas for 1198 Idicate that with an additional 10% transferdfrom government and other sources, industys share of Invati financing may have reached 30%

Tabk R&D FUNDING AND IN S0dC COUNIE if

) J - .. .. _ _~~~~~

-20 -

Table 4.4: R&D FUNDING AND FEBNDnURES IN SELECTED COUNTRIES S

Comtfy Year Sore of Fnding e of Eqendlture

G I F 0 1 HE GA

BRAZIL 1982 67 20 S 8 30 17 53

Axgentla 1981 95 - I 4 41 22 37Meder 1984 IS I 1 83 30 S1 19India 1984 87 13 - - 26 - 74S.Korea 1986 19 81 - - 67 11 22

Japan 1985 21 79 - - 67 20 13USA 1S86 47 59 - 3 73 12 15

Source: Unels, Statistct Y Padis 1988

aI0 stands for gomanment I for Inuat, F for focelgo 0 for other, HE for higher edacation, and GA forgovernmet agenc

4.15 Thb pattern of govenment domnace of R&D efpenditures is also apparent In otherindustrializing economies-such as Argentina, Mexdeo and India-that hae not been able to sustain theircompetitve position in world markets for more sophisticated goods In South Korea and Japan, in contrast,industqy both finances and caries out most R&D. In the U.S., financing is shred equaly by govenment(a good propordtion of R&D being defense related) and industty. although industry ultimatel undertakesmost R&D.

D. Human Capital Formation

4.16 Brazirs education system is one of the main obstacles to the countys moderizaton andtectbological upgrading Although major defidencies characterize all components of the system, morefundamental weaknesses aie observed in primary education and at the top end in science and engineering.

4.17 Pin=a and Secnday Schooling. Technical progress in industy is increasingly dependent onan educated labor forc Low levels of basic education and skills are not compatible with the compleaity,precsion, and consistenq of modern industry. Yet in 1980, 73% of the Brazilian labor force either had noeducation or had not completed primar school, a figure among the highest for middle-income countries.In 1985 Brazil's total secondary enrollment represented only 35% of secodry school-age popation, well,below the averag for middle income Cwuntries (Table 44

4.18 Brazls heavy investment in vodational and technical training has compensated to a limited extentfor the weakness of the formal school systenL Although the proportion of students enrolled in vocationaltraining as a proportion of the working age population is less than in South Korea or Taiwan, it iscomparable to that of Mexico and considerably above other comparator oountries (fable 4.5). Yet thetrainabiity of students at vocational and technical schools increasirgly depends on the quality of their basicschool education More generally, the tcnological content of industrial and other economic activitiesrequires growing levels of formal education for thl labo force , which the Brazin education system iasfailed to provide.

4.19 EIgher Educado Between 1960 anid 1985, the total number of terdary students went fom93,202 to 1,437,232, a rapid expansion. As a peroentage of their age group, students enrolled in highereducation comprised 11%, up from 2% two decades earler (Table 4.5). Altho .gh that perentage does notcompare poorly with other industrialWiqg countries (with the exception of South Korea), certain featurs

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of the higher education sstem td to undrine its dfctves as a breeding grund for tecnl laborand Innovation

* First, the three-fold expansion of un uate enrollment during the 1970s, comblned with adecline n fMl-time fculty, has had an advwse effbt on the quality of univesity education acrossthe board. Man postgraduate courses have been edged to remedy the insufficiendes of under-graduate trainlg. The low status and poOr qualcain of undergraduate teaches are the core ofthe problem. About 45,000 full-time teachs hird intialy on a provisional basis, without formalprocedures or evaluation, are now tenured. Most lac academic training and bave not gone beyonda BA degree. They safve some 450,000 students fe, public untstie4ZY In addition, around60,000 teaches, also not vwell qualifd and many with a large teadhing load in several Institutions,serve 850,000 students private schols

* ,Second the postgraduate system also faces severe quality problems. Although in 1970 there were57 doctoral programs in Brazilian uniersities, in 1985 the were more than 300, with another 800providing trang at the MA. level Combined, they were graduating 5,000 students at both levelseach year* Yet there is a wide quality vaane among postgraduate progms, and accordig toCAPES' (Coordenaclo de Aperfeicoamento do Ensino Superior) evaluations, only about one-fourthof new graduate programs are academially satisfactory. Most progams also fc uncertain finanialsupport from FINEP and CAPES, and very few have been able to dimersiy their funig by likngup with or supporing Inwvative effots in the productive sector.

* bhd, the proporto of students in sdence, mteatles and engineering is relatively smallcompared to other industialzing ntries, being cnsiderably below fast growing East Asianeconomies and Mdico (Table 4.5). In engheering alone the dispropor is even greater. thereae more than four times as many enginern students in as a percentage of the popuation inSouth Kora, Hong Kong, Taian and Singapore as tbere are in Brazil; and there are three timesas many in Mexico (Table 45.

4.20 The cmbination of low-quality udergraduate teaching few strong gduate programs, arelativ small pool of students in science, matbematics and engineering, and underuse of edstingeducational capabilities outside fonal institutions of higher laring has contributed to Brazi's laggingR&D manpower. Brazil has fewer scientists and enges engaged in R&D in rdatio.n to population (256per millon) than lwan (1,426 per million), Singapore (960 per million), South Korea (804 per miSlion),ad Argentia (360 per milion).

4.21 Moreover, the distribution of human resours aloUted to R&D is co trated inbiologicl and health sciences, as well as applid social scienoes, human scences, and the atsditeauregable 4.6). In two key fields, namely eni and agian scienes, the propoon of resehers isreatively smalL ThMeir seconday position in the ditibution of R&D resarche suggests that much R&Dundertaken in Brazil is not closely related to productive acivitieL

27I See Simon Sarlzman, 'Brazwl Opportunity and Ctss in Her Education, lgh E't"17, 1988, pp.99-119.

2f -S. Schwaptna. c p.104.

-22-

T1bW94 DDICAWO1N OF D4VWUfdWfl IN HMAN CAPiTAL 11N SBLECIUD NI(O AND WAAN

&.ENo= Ibla R. Kqq Slajcr Ita Mude. Indi Idniani Jap

Peren AP OtW p-Vd Il:

(190) 101 97 103 105 laS 92 74 72 100(198S) 96 100 105 115 104 t1 92 118 102

- EmdrnUe(195) 35 38 29 45 16 17 27 12 82(198) 94 91 69 71 35 55 35 39 96

6 7 5 to 2 4 5 1 1333 13 12 31 16 9 7 35

No. ci To"tltuy S --de.-I

per 1W.0 Popahllam

Po) past 3606 2060 1410 1406 114 158 776a 600 2006

No. of Tleid,y SWdeibi CSE Bb (0) 585 207 36 22 Su 563 1443 23S 707

000 (tv" (1 (tw 0 (19 0 (twM (M)

AS of PopubdmlrTodal t30 06 067 0.89 40 0.70 021 0.14 058ueba 22 136 4n72 0s 058 1.2. O7 03 07

No. of StWdnt In SM. g(MO 320. 151 27 162 3233 336.9 1269 1373 4869

AsS of FPd_Teal 0.76 O7 051 7 0.24 02 0.9 oa9 00Usban 110 L0 0m 73 034 0M59 0.86 03 q3

No. of StudesaB In

(i0) 227A 127 21.1 154 1646 2818 397.0 1093 4189

As % of Pap bTosal 054 04- 0A41 Q61 0.13 035 0.06 0*7 034Udbn 0.78 085 0.42 06 0.17 0450 27 0.27 A45

NM of Students EntIh-b V0calca

ThIbnl (00 814.5 406 31.7 94 148S1 853g6 397.7 10613 141S4(Yew (6 (198) (1984 (19 1968) 61) (198O) (1986)

A% E'Poputma otWettin Apg 3.06 324 086 0.54 13 20 0.1 1.14 L71

SaMIe Ia "Eaiiln Jadomzra Suca in Demlapin Cc.nldw ID S LAUl VA J( bmj (aft.) Cetj iD edom L=_ 1AID*O illan fb Od8S datB lkm Wod4.Doagen RaRo 1988; 1.1eC,

"a Path 1989 and Gout d Rofqwb aor Stat Yaltbook of Remblo c aa 19CT_bLe oesume of Rqtawbic fCan,iity of eAEduebnof of, _ f

bi Gmemir udse aSd aiglsug Udac safdslua iaue .ntbeadw and aisute eemen mdldn e*agined aidtlzceut lzde,av i scl n onmwokhv oy d.yYf Phtw odmr ote_ ; ad_ 'qw nne

( * I sg2s f l Sttt ,

it I IX8J f el-s§fiiP 8 1

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V. CONCLUSIONS

5.01 Thi papers major contention is that a combination of limited tedhological involvementby domestic producets, regulatoq and policy rtriton on both embodied and dismbodied forus oftechnology Imports, and weak nstitutional support to industrial frms, has increased Brazlian frms' distancefrom the price-performance frtier. in addition, major gaps in the educational system, paticularly Iowenrollment levels in secondary school and in science and engineering, compromise the supply of technicallabor force and the acquisition of technological capabilities in the future.

5.02 As in most discussions of this knd, thee propositions are subject to a number of caveats.Firs, the suggestion that relatively few frms are actively engaBed In technology dvelopment omits the factthat not long ago, say in the ealy 1970s, rfewer tan thepresent core of 350 R&D-active flrms (with acontour of 1,200 producers) were technologically activ. In many cases, imprve technological perfomancecame as a result of competitve pessures fkom the intntiona rwet or national firms, particulartythose in capital goods and eecronl, suppt o genme tecology polcs and isttudons wascriticaL

5.03 Tis paper suggests that much of the underlying motvatioa fot the Brazin Govnment'stechnology poLies was not the imprvement of the coutWs technical base but the more short-sightedconsideration of saving or eauning foreig excage. A seond caveat is now in order. Although thatgeal statement is on the whole correct, the Govment's technology policies also improved thebarining position of local fims in negotiating arms-length technology transfr deals In addition, theypromoted eatry of domestic firms in areas that normally would be precluded through patent protecion orthe eerise of overwhelming market power (pharmactica and electonics), while stimulating the creationof a fairly sophiscated capital goods sector. Moreover, such policies effectively steered multinaonal frmsthat tradtionally had been domestic market-oriented towad exporti thereby forcing the tecnolgicalupgrading of their domestic operations. Finally, the poLies aeated for the first time a fnanng mechanismfor the technoloSg needs of Brazilian industrial and engineering consulting fims

5.04 What the paper is implicitly arguig, however, is that these govenmnent polides were carriedtoo far and became outdated. Restricdve ams-length technology transfer policies, for example, asmmed theprence of relativel unsophistcated domestic producs and the considerable eagerness of foreig suppliesto market their latest technological wares. Nearly two decades after these policies were flrst implemeted,te assumptins are much less justifiable Similarly, capacity creation in sophisticated industial segments,such as capital goods and electronics, was regarded as double benefits for eomic development it alowedfor import substitution in areas of beavy foreign exchange outflow wble creating capabilities in strategicsegments for the formation of skills and diffusion of knowledge. But aoss-the-board import substitutionled to ewesver diversification, fagmentation of efforts within fims, and substantial waste in gvrnmet-supported technological pursuits.

5.05 A thrd and finacseat conems the institutional support system for technical advance inindustry. his paper argued that despite a number of important eptdons (such as EMBRAPA, CIA andIT), the public R&D network is not vy responsive to the producdve needs of the economy. Moreover,oveapping and fagmentay efforts dissipate sare resourCeS. What was left unsaid, howevr, is that thefaults of the institutional network are not unique to Brazil nor to industrializing countries, for that matter.A more demanding industril sector, chllenged by competitive markts and foused on fewer product areas,would be a far beter user of existng Instutional resources (as the experenc of Metal Leve and Embraershow) and an efctive force for reform.

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AMt TABLt 1: MMSITS TV MUW;T SHAMRES FOR LRAZI'8 M CUREPORTS, 1970-1287

MARET SHARES RATIOS

SITC COMMDITIES 1070 1980 1887 80t70 87/80

512 ORANIC CHUIICALS 0.003 0.009 0.012 3.0 1.3513 1NMt0ElEnZTS,OXIOZS,ETC 0.000 0.004 0.008 9.3 1.8514 0TII INORGAIC CHEMICALS 0.001 0.002 0.004 1.6 1.8515 RAIOACTI ETC MATERIAL 0.000 0.000 0.000 0.0 37.1521 CAL,PETROLEUM ETC CUM 0.000 0.000 0.004 5.1 88.1531 SYNT DYE.ART rNDGOSLAXES 0.000 0.001 0.001 4.2 0.7532 DYES NESTAINO PR ODS 0.040 0.041 0.052 1.0 1.3533 P'IGENTS.PAINTS.ETC 0.000 0.002 0.002 11.1 0.9541 MEDICINAL ESC PRODUCTS 0.002 0.003 0.003 1.6 1.1551 ES8ENTL OIL,PERFUME,ETC 0.023 0.018 0.014 0.8 0.8553 PERFUMR.COSoETICS.: 0.001 0.005 0.003 4.8 0.8554 SOAtCLEANG ETC PEEP 0.000 0.006 0.002 18.1 0.4561 PFTILIRS AMANWACTURED 0.000 0.000 0.001 31.9 4.2571 PLOsmiES,PYRogcs ID 0.002 0.041 0.168 23.8 4.1581 PLNSTC MA.TMLIALS ESC 0.000 0.003 0.007 20.4 a.4599 CBDIICALS 3es 0.002 0.008 0.008 3.4 1.1611 LEAMTER 0.021 0.029 0.032 1.4 1.1812 LTATM IETC MAIUPACTSs 0.005 0.025 0.044 5.1 1.8613 FMF1 SKINS TmIUEI).SHESS3 0.000 0.001 0.002 55.4 2.4621 MATERIALS OF RUBHER 0.000 0.003 0.003 18.9 0.9629 RUBBIR ARTICLES DE8 0.003 0.011 0.016 4.1 1.4631 VENEJS=lr* DhoDwlTC 0.025 0.023 0.022 0.9 1.0632 WMO MANUFACt.RES 3ES 0.003 0.012 0.010 4.7 0.8633 CMRK MANUFACTURES 0.000 0.001 0.001 18.4 0.7641 PAPER AND PAPVRBOARD 0.000 0.006 0.009 78.5 1.5642 ARTICLES OF PAPER ETC 0.000 0.004 0.006 16.1 1.4851 T8XTILE YARN AND THREAD 0.004 0.020 0.018 5.1 0.9652 COTTON FAHRICS,IWVER 0.008 0.016 0.015 2.6 1.0653 WCWE9 TEXTILES NORCOTTON 0.001 0.004 0.002 5.3 0.8654 LACE.r ZBO.TULLEt.ETC 0.004 0.003 0.003 0.7 0.9655 SPECIAL TKTILE ETC PROD 0.003 0.020 0.008 6.0 0.4856 TXTILE ETC PRODUCTS 3ES 0.003 0.028 0.034 8.1 1.2657 FLOOR COVR,TAPESTRY ETC 0.000 0.001 0.001 5.2 1.2661 CMENT ETC BUILDING PROD 0.000 0.006 0.004 17.3 0.7662 CLAY,RZRACTCRT BLDG PED 0.002 0.012 0.014 6.8 1.2663 OTH DOhMETAL MINERAL MFS 0.001 0.007 0.005 7.5 0.7664 GLASS 0.010 0.005 0.006 0.5 1.0665 GLASSWASE 0.000 0.004 0.006 14.6 1.6s66 POTTERY 0.001 0.007 0.009 7.0 1.2667 PEARL.PBEC-.541-P STONE 0.004 0.002 0.005 0.6 2.1671 PIG IRON ETC 0.026 0.073 0.145 2.6 2.0672 IRK.STL PRIMRT F5RHB 0.015 0.009 0.064 0.6 7.5873 IRoN AD STEEL SHAPES 0.009 0.007 0.023 0.7 3.4674 IRNS1TL UNlV,PLAT5,SRZZT 0.004 0.011 0.022 2.9 1.9675 IRON,8TREL EOOP.STR1P 0.000 0.004 0.004 34.8 1.0676 RAInM! RAILS ETC IRN,STL 0.000 0.005 0.000 25.0 0.0677 IRR,STL WIE UCL W ROD 0.002 0.005 0.007 2.8 1.5678 IRON,ss TUESs,PIPEs,ETC 0.001 0.010 0.007 8.3 0.7679 IR.STL CASTINGS UNlRD . 0.002 0.005 . 2.8691 STRUCTURES AND PARTS NMM 0.000 0.002 0.004 14.9 1.5692 METAL TA8 S,BOXES,ETC 0.001 0.009 0.007 10.0 0.8693 WMRE PRODUCTS N ELECTS 0.000 0.009 0.012 19.4 1.3694 STL,COPPR MAILS.NUTS8ETC 0.000 0.003 0.003 10.9 1.1695 TOOLS 0.004 0.007 0.005 1.6 0.7696 CUTLERY 0.006 0.020 0.018 3.6 0.9697 BASE MTL BDtEEOLD EQUIP 0.001 0.012 0.007 15.2 0.6698 HIEAL MANUFACTURES RES 0.000 0.003 0.003 7.8 1.2711 PO4ER MACHINERY NON-ELEC 0.000 0.013 0.014 34.5 1.1712 AMICULTURAL MACDINERY 0.001 0.016 0.016 23.2 1.0714 OFFICE MACKINES 0.007 0.011 0.002 1.6 0.2715 HETALRKII FMACSINERY 0.002 0.006 0.003 3.1 0.5717 TEXTILELEATHER MACUHRY 0.002 0.005 0.005 3.2 1.0718 MACHS FOR SFCL INDUSTRYS 0.002 0.007 0.005 2.7 0.8719 MACHINES DsE ONELECTRIC 0.Ol 0.005 0.005 5.7 0.9722 ELEC PAR MACH,SWITCHGEAR 0.00 0.005 0.003 5.1 0.7723 ELECTR DISTRIBUSTI GMACM 0.001 0.002 0.006 2.2 2.3724 TLWICATIONSEQUIP 0.001 0.005 0.010 4.7 2.0725 DQD3STIC ELECTRIC EQUIP 0.001 0.004 0.005 2.7 1.5726 8LCR-MKDCL,ZRAT EQUIP 0.001 0.001 0.000 1.7 0.3729 ELECTRICAL AC ES 0.001 0.005 0.003 3.7 0.5731 RAILWAY VEIIICLES 0.000 0.016 0.004 47.4 0.3732 ROAD MDTOR VEHICLES 0.000 0.008 0.009 18.3 1.1733 ROAD VEHICLES NM-NOTOR 0.000 0.007 0.001 48.0 0.2734 AIRCRAFT 0.000 0.003 0.011 40.5 3.3735 SHIPS AIND DCTS 0.001 0.007 0.010 8.2 1.4

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,me Tabl 1: (Cont4.)

MARKE SIEARS RATIOS

8iTC CXW2linE 1970 1980 1987 80/70 87/80

812 LMMI6,NKATNG,LGBEM EQU 0.000 0.004 0.003 9.0 0.7821 FM TItME 0.001 0.003 0.002 1.9 0.9831 TRAVEL 00OU6,IAXnBDIi 0.000 0.013 0.012 41.9 1.0641 CLOTIZEG NOT f FMUR 0.001 0.003 0.003 6.0 1.0842 FUR ESC CLOTHES,IOD 0.000 0.017 0.004 299.8 0.2851 POOtYXnNR 0.005 0.033 0.057 6.7 1.7861 INE M*APPARATS 0.000 0.002 0.002 11.5 0.8662 PWTO,CIUDI2 SUPPLZRS 0.001 0.007 0.010 6.7 1.4863 DEVLOXPED CM rFIum 0.000 0.001 0.000 2.3 0.1884 N$1U38 AIID ClCES 0.000 0.001 0.001 15.1 1.586 2 OUNf EVMR8.PMR:S 0.001 0.007 0.000 1.8 0.1892 MIRTMnn MATTR 0.001 0.003 0.002 2.1 0.6893 ARTICLES OF PLASTIC 15S 0.000 0.004 0.002 22.4 0.4694 oTr8,s'spToo3 3G0S.ETC 0.001 .00G 0.003 5.7 0.s895 OCFICR SUPPLiES mm 0.000 0.e02 0.005 13.0 2.1$86 NORKS OF ARTETC 0.000 0.000D 0.000 0.7 0.1897 am,U ,8UR WuA,JWB5LRY 0.004 0.002 0.003 0.6 1.3899 OR MWFMACTURED ODODS 0.001 0.005 0.005 7.9 0.$

0.002 0.007 0.008 3.5 1.1

1,

-27-

IBlBIOGRAPHY

Braga, IL and Mats, V, D mpeuho Tecdoglco da Industral Bslra uma Anjise Exploratorla,'Tatos Nra Di ntna no. 162, JN%PESJPEA, Februay 1989.

Cardozo, A.C, "A Implantago de Les e Regulamentos Sobre Thsferacla de Teologla: A Experiledado Bri t m 198&

CNPq, PRecursos do Tesouro da Uniso: Dotacao Indal, Dotacso Final, e Despesa Realzada 1989May, 1989.

Coakdasu Nadonal da IndustraisRIO, 1990.

FPIsctk C IS WIi*tloa, Techic Che and Compeldvo- to the b Br a Ectas bndusuy,'kUM §WAj!jWNo- 15, Mm. World flAak W"usr and Enexg Department, 1969

Go nmet of Republic of dhina, M1ty of Edcation, St s o ippb ot 1984

oenumet of Republc of Chdna, Statistical Yerook of Republic of Cina 19 Tawa

Kume, IL 'A Poitca Taria Brasleia no Perodo 1985: Avalaco o Reforma,' mIm, 198&

Lul. S. plaing Industial Sucem in Deeloping CoDUni, i S Lal VN. N.(e)Crrent Issues in Deelomt Eonomi London, Macmailln (ftoming).

Martins, 0. and Queiroz , '0 Perfl do Pesquad Brasilei Revista lelm de TecnoJji VoL 18,No. 6, September 1987.

Nunes, 1, 'As Formas Ilidoas do P&D na Industrh Brasilea, Revisa Brasilefra do Tecnoloeba VoL 16,No. 2, 198S.

PaulUny, E, 'Empresa Nacdonal-Panorama do Setor Enmprsl em 1983,' Revista BRasiera de Tcnmlqgi'VoL 15, n.3, 1984.

Roseau, K, Regulation of Foig Investment In Brazi, , 1988

Schwaan, S, Brazik Oppotnity and Cris in Higher Education,' Ihe Educaton 17, 1988,pp. 99-119.

Tavar de Araujo, 1., Haguenawur, L and Mabad o, J.L, 'otesao, Compdtltdvade e DsempehE 1xwro da Economia Baseleim nos Anos 80,' Revsta Braei do Comedo ri ano V,No.26, NovembroiDeembro 1989.

Tavares do Araujo, J. 'Mudanca Tecnoga e Competitdade das E 1prace B ieras deManufatuados, IEIFEAUPJ, Teo para DI o 1982, Table m

UNESOO, Stasical Yerbook 1988 Pars, 1989.

World De pmt Ren 1990.

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RMUSTRY SERIE PAPERS

No. 1 Japanese Direct Foreign Investment: Patterns and Implications forDeveloping Counties, February 1989.

No. 2 Emerging Patterns of International Competition in Selected IndustrialProduct Groups, February 1989.

No. 3 Cbanging Firm Boundaries: Analysis of Technoloy-Sharing Alliances,Febray -1989.

No, 4 Technological Advance and Organizational Invation in theEngineering Industry, March 1989.

Nlo. 5 Eprt Catalyst in Low-Income Countries, November 1989.

No. 6 Overview of Japanese Industrial Technology Development, March 1989.

No. 7 Reform of Ownership and Control Mechanisms in Hungaiy and China,April 1989.

No. 8 The Computer Industry in Industrialized Economies: Lessons for theNewly Industiializing, February 1989.

No. 9 Institutions and Dynamic Comparative Advantage Electronics Industryin South Korea and Taiwan, June 1989.

No. 10 New Environments for Intellectual Property, June 1989.

No. 11 Managing Entry Into International Markets: Lessons From the EastAsian Experience, June 1989.

No. 12 Impact of Technologiqal Change on Industrial Prospects for the LDCs,June 1989.

No. 13 The Protection of Intellectual Property Rights and IndustrialTechnology Development in Brazil, Septembe 1989.

No. 14 Regional Integration and Economic Development, November 1989.

No. 15 Specialization, Technical Change and Competitiveness in the BrazilianElectronics Industry, November 1989.

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RNDusrYX sI PArERS c.at'd

No. 16 Small Trading Companies and a Successful Export Response: LessonsFrom Hong Kong, December 1989.

No.i 17 Flowers: Global Subsector Study, December 1989.

No. 18 The Shrimp Industy: Global Subsector Study, December 1989.

No. 19 Garments: Global Subsector Study,, December 1989.

No. 20 World Bank Lnding for Small and Medium Enterprises Fifteen Yearsof Experience, December 1989.

No. 21 Reputation in Mam*ctured'Ooods Trade, December 1989.

No. 22 Foreign Direct Ivestment From the Newly Industialized Economies,December 1989.

No. 23 Buyer-Seller Links for Export Development, March 1990.

No. 24 Technology Strategy & Policy for Industrial Competitiveness: ACae Study of Thaila4d, February 1990.

No. 25 Investment, Productivity and Comparative Advantage, April 1990.

No. 26 Cost Reduction, Product Development and the Real Exchange Rate,April 1990.

No. 27 Overcoming Policy Endogeneity: Strategic Role for DomesticCompetition in Industrial Poliey Reform, Aprfl 1990.

No. 28 Conditionality in Adjustment Lending FY8O-89. The ALCID Database,May 1990.

No. 29 International Competitiveness: Determinants and Indicators,March 1990.

No. 30 FY89 Sector Review Industry, Trade and Fmance, November 1989.

No. 31 The Design of Adjustment Lending for Industry: Review of Cufrent Pracice,June 1990.

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IDUSIRY SERIES PAPRS eAn'd

No. 32 National Systems Supporting Technical Advance in Industryr. The BrazilanExperience, June 26, 1990.

No. 33 Ghana's SnmUll Enterprise Sector: Survey of Adjustment Response andConstraints, June 199Q.

No. 34 Footwear. Global Subsector Study, June 1990.-

No.- 35 Tightening the Soft Budget Consraint in Rdming Socilist Economies,May 1990.

No. 36 FEee TiAe Zones in Export Strategies, June 1990.

No. 37 - Electronics Development Strategy: The Role of Government, June 1990

No. 38 Export Finance m the Philippines: Opportunities and Constraints -forDeveloping Country Suppliers, June 1990.

No. 39 The US. Automotive Aftermarket: Opportunities and Constraints forDeveloping Country Suppliers, June 1990 -

For extra copies of these papers please contact Miss Wendy Young onxtension 33618, Room S-4101

~~~~~~~~~~~~~~~~~_I ,,-

iii

ENIERGY SERtIES PAPERS

No. 1 Energy Issues in the Developing World, Februay 1988.

No. 2 Review of World Bank Lnding for Electric Power, March 1988.

No. 3 Some Considerations in Collecting Data on Household Energy Consumption,March 1988.

No. 4 Improving Power System Efficiency in the Developing Countries throughPerformace Contracting, May 198$.

No. 5 Impact of LowerOil Prices on Renewable Energy Technologies, May 1988.

No. 6 A Compareson of Lamps for Domestic Lighting in Developing Countries, June198&

No. 7 Recent World Bank Activities in Energy (Revised October 1989).

No. 8 A Visual Overview of the World Oil Markets, July 1988.

No. 9 Current International Gas Trades and Pnces, November 1988.

No. 10 Promoting Investment for Natural Gas Exploration and Production inDeveloping Countries, January 1988.-

No. 11 Technology Survey Report on Electric Power Systems, February 1989.

No. 12 Recent Developments in the US. Power Sector and Their Relevance for thelDeveloping Countnes, February 1989.

No. 13 -Domestic Energy Pricing Policies, April 1989.

No. 14 Financing of the Energy Sector in Developing Countries, April 1989.

No. 15 The Future Role of Hydropower in-Developing Countries, April 1989.

No. 16 Fuelwood Stumpage: Considerations for Developing Country Energy Planning,June 1989. .

No. 17 Incorporating Risk and Uncertainty in Power System Planning, June 1989.

No. 18 Review and Evaluation of Histotic Electricity Fecasting Experience, (1960.1985), June 1989.

) .~ .

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ENERGY SERIES PAPERS cont'd

No. 19 Woodfuel Supply and Environmental Management, July 1989.

No. 20 The Malawi Charcoal Project - Experience and Lessons, January 1990.

No. 21 Capital Expenditures for Electric Power in the Developing Countries in the1990s, February, 1990.

No. 22 A Review of Regulation of the Power Sectors in Developing Countries,February 1990.

No. 23 Summary Data Sheets of 1987 Power and Commercial Energy Statistics for100 Developing Countries, March 1990.

No. 24 A Review of the Treatment of Environmental Aspects of Bank Energy Projects,March 1990.

No. 25 The Status of Liquified Natural Gas Worldwide, March 1990

No. 26 Population Growth, Wood Fuels, and Resource Problems in Sub-SaharanAfrica, March 1990.

No. 27 The Status of Nuclear Power Technology - An Update, April 1990.

No. 28 Decommissioning of Nuclear Power Facilities, April 1990.

Note: For extra copies of these papers please call Ms. Mary Fernandez on extension33637.