Technological Skills and Innovations for South Asian Economic Integration and Growth: Need for Some Key Actions

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Introduction

Economic Growth in South Asia was triggered off by the first-generation policy reforms, including greater global integration, macroeconomic stabilisation, and economic deregulation. Trade restrictions including import tariffs were reduced. The scope of the state was reduced through economic deregulation to enhance the role of the private sector as the engine of growth. These reforms made the South Asian countries more stable, competitive, and adaptable. It helped to overcome three key constraints to growth (Spence, 2005):

* Exports to the rest of the world relaxed the constraint from capacity to consume domestically.

* Inflow of remittances relaxed the constraint from capacity to save domestically.

* In-bound technology and knowledge transfers through increased trade rapidly moved the production possibility frontier outward.

While South Asia made significant progress in integrating with the global economy, integration within the region remained limited. South Asian countries have maintained a higher level of protection within the region than with the rest of the world. Restrictive policies within the region have neutralised the beneficial effects of common cultural affinity, common geography, and the 'gravitational' pull of proximity on movement of goods and people within the region.

Since the 1980s, the South Asian countries (1) have been growing faster than the rest of the world. However, the international environment is becoming more competitive and demanding. In addition, higher education and innovation are becoming more critical for countries to be able to benefit from the increasingly globalised international environment. Therefore, South Asian countries have to improve their skills and innovation capabilities. Here we will assess the position of South Asian countries and propose some of the key actions that they need to take to strengthen their technology and innovation capabilities to improve their economic performance and welfare.

This paper covers the five largest South Asian countries. They range from Sri Lanka and Nepal, which have around 20 million inhabitants each, to India, the second most populous country in the world with slightly more than one billion people. In terms of gross domestic product (GDP) per capita, four are in the World Bank's low income category (per capita income less than US$765 in 2003) with Nepal at the very low income level, to Sri Lanka, which just makes it into the lower middle income category (US$766-3,035) (Table -1).

Each of the five has had rates of growth above the world average for the period 1980-90 and 1990-2003, with Pakistan having the highest rate of growth in the decade of the 1990s and India the highest in the 1990-2003 period (Table-.2). In fact in the last years India has achieved a spectacular rate of growth of 8 percent. 5

To put them in the global context, it is instructive to compare their shares in the global population with those in global GDP and trade. Because, they are low income countries, their share in global GDP is much lower than that in global population. At the higher end, Sri Lanka's share in global GDP is 17 per cent of its share in population, while that of Nepal is just 5 per cent. With respect to exports, Sri Lanka's share of global exports actually exceeds it share of global GDP by 40 per cent, indicating it is an export-driven economy. The shares of the four other countries range from just 44 per cent (India, the least export oriented) to 70 per cent (Pakistan). While the share of exports in global exports between 1990 and 2003 increased by 80 per cent for Bangladesh and 40 per cent for Sri Lanka and 45 per cent for India, Pakistan and Nepal just maintained their relative shares (Table -3).

In terms of the share of exports of goods and services in GDP, only Sri Lanka, with 36 per cent, is above the world average of 24 per cent (Table--4). …