Determinants of levels of high technology exports an empirical investigation.

ABSTRACT

High technology contributes to rapid growth by changing the key factors of success. It has now emerged as the major source of wealth generation as opposed to the resource-based industries that dominated the twentieth century. Recent data in high technology trade shows that

a small number of countries such as the USA and UK show increasing surpluses, while most other countries tend to show chronic deficits. Existing studies on high technology trade tend to focus on advanced countries and are often devoid of empirical examination. This paper develops a model of the determinants of high technology exports, which is tested on a sample of 55 developed and developing countries. It is hypothesized that high technology exports are a function of a country's level of inward foreign direct investment, home demand conditions and technological infrastructure. Using factor analysis and multiple regression, the study examined the effects of these variables on high technology exports. Some important implications flow from the results. First, inward foreign direct investment has a significant and positive effect on high technology exports. For many developing countries with limited indigenous technological capability, foreign multinationals have played a major role in providing the requisite expertise to enable them to export a variety of high technology products. In Malaysia and Singapore, foreign multinationals have set up advanced manufacturing, design and development capabilities, thus allowing them to export a whole range of high technology goods.

Second, sophistication of buyer needs play an important role in influencing a nation's high technology exports. This variable which is taken on a scale of 1-7 measures the extent to which a country's buyers are knowledgeable, demanding and buy innovative products. The results indicate that there is a strong positive relationship between sophistication of buyer needs and high technology exports. Thus, the existence of sophisticated buyers pushes companies to employ advanced technologies in order to remain competitive.

Third, the results also show that national technological infrastructure contributes to enhance high technology exports. A nation's stock of technological infrastructure is critical to competitive success in knowledge intensive industries. In short, these results indicate that success in high technology exports depends on a number of factors including inward FDI in sophisticated industries, demanding local buyers and a developed technological infrastructure.

INTRODUCTION

High technology is often used to refer to firms and industries whose products or services embody advanced and innovative technologies. Such firms have in common a reliance on advanced scientific and technological expertise and are often identified by high research and development expenditures (Keeble & Wilkinson, 2000). In this study, high technology is operationally defined to cover products that fall under sections 84-92 of the harmonized tariff classification. The harmonized tariff classification system which is now adopted by many countries is a commodity description and coding system that defines goods according to their essential character (Seyoum, 2000). High technology products include aerospace, computers, software and related services, consumer electronics, semiconductors, pharmaceuticals, scientific instruments and electrical machinery (OECD, 1990). In the context of this study, the terms "technology-based products," "advanced-technology products" are also used to denote high technology goods. The term "competitiveness" is defined as the nation's ability to produce and distribute goods in the international economy in competition with those produced in other countries. A good measure of national competitiveness in high technology is the presence of substantial and sustained exports in the high technology sector (Seyoum, 2004).

High technology sectors contribute to rapid growth in both manufacturing and services by increasing the overall efficiency of labor and capital. A recent study shows that the growth rate of the top fifty countries (in terms of R & D intensity, and scientific manpower i.e., number of scientists and engineers) was about three times higher than the rest of the world for the period 1986-1994 (OECD, 1999). High technology also provides firms with a competitive advantage by changing the key factors of success. In some cases, small firms with limited experience have managed to overcome the cost handicap created by dominant competitors through technological innovation. In the future, high technology industries will be the primary source of wealth generation, as opposed to the resource, labor and capital-intensive industries that dominated the twentieth century (Reich, 1991). Many countries have now embarked on technology-based development. New Silicon Valleys have begun to sprout in many parts of the world. In most of the OECD countries, for example, trade in manufactures is composed of an increasing share of high technology goods. A small group of developing nations also produces and exports a rising share of high technology goods (Table 1). The data in Table 1, however, does not provide the breakdown for re-exports.

Although the overall trends are clear, large differences remain between countries. Among the industrial nations, the United States, the United Kingdom, the Netherlands, Japan, Finland and Ireland appear to be in the lead in the transition to a knowledge-based economy as is indicated by the level of high technology exports as a share of manufactured exports. Similarly, among developing nations, the export of high technology is concentrated within a handful of countries, notably S. Korea, Malaysia, Philippines, Singapore and Thailand (World Bank, 2001). Many other developed and developing nations lag in many important areas including investment in knowledge innovation and growth of a high-skilled workforce (OECD, 2001; Mani, 2000).

High technology exports of developed and developing nations are by and large similar in terms of product specialization and technological sophistication. Available data for high technology exports (1997) show that both groups of nations increasingly specialize in the production and export of components and parts in both electronic and office equipment products (Table 2).

In both groups, over one-third of total high technology export is composed of electronic integrated circuits and parts of automatic data processing machines. In spite of these similarities, it is also important to note some salient differences in the structure of high technology exports between developed and developing nations. Developed countries tend to have a more diversified export structure than developing nations. If we compare the leading high technology exports for both groups, we find that the top ten items (products) account for over three-quarters of developing country exports while it accounts for only about one-half of developed country exports. Secondly, many developing countries have yet to develop indigenous technological capability as is indicated by the limited level of domestic R & D as well as patenting activity (World Bank, 2001). Even among the top five high technology exporters in developing countries, only South Korea and Taiwan have significant indigenous technological capability. This means that foreign multinational firms make most of the high technology exports from these countries.

Recent data on technology balance of payments show that in most OECD countries, technological receipts and payments increased sharply during the 1990s. If we take royalty payments and receipts for technology licenses as one measure (balance of technology trade), a small number of countries such as the USA and UK show increasing surpluses while most other countries tend to show chronic deficits (World Bank, 2000-2003). A balance of payments deficit in technology may not necessarily indicate low competitiveness, but the result of increased imports of technology (Table 3).

The market competitiveness of a nation's technological advances when embodied in new products and processes provides an important evaluation of the economic productivity of its science and technology system. For example, many Asian countries have become important suppliers of high technology products to the world market. Such success indicates a national orientation towards high technology development through upgrading of the necessary scientific and technological resources. Asian sales of high technology products to United States averaged over 40 billion (US $) annually and exceeded Asian purchases of like-classified products from the United States each year between 1989 and 1999 (World Bank, 2000).

For many countries, high technology development may not be easily realized just through domestic innovative activity. The experience of many successful economies shows that besides internal technology development, external sources of technology can be identified and acquired through licensing of foreign technology, foreign direct investment, and acquisition of foreign high technology companies or even importation of high technology products. Even though governments tend to focus on the production of technology, it is the consumption of it that has the greater impact. A study by the OECD on the role of R & D spending and spending on the acquisition of foreign technology found that in many industries the productivity gains were greater and the return on investment higher from buying rather than producing technology (OECD, 1997). As J. Rohwer in his book on Asian economies states: "These days you not only do not have to reinvent the wheel, you can find out how to make the car and then improve on the car making process yourself. That is why countries starting out very far behind the rich would have the chance if they get things right to make up ground so fast. Getting things right means, above all, making an economy as open as possible to foreign influence" (Rohwer, 2001).

The United States continues to be the leading producer of high technology products. In 1998, it accounted for 36 percent of the world's production followed by Japan (20%). The share of West European nations has been declining over the years while that of developing Asia, particularly that of S. Korea and Taiwan have shown dramatic gains (National Science Foundation, 2002).

The share in merchandise trade of technologically complex products has risen steadily in recent years. The higher the level of technological sophistication, the higher the export growth rate. World exports of high technology products grew by almost 12 percent per year compared to that of 1.4 percent for primary products; 5.6 percent for low tech products (textiles, toys, footwear etc.); 5.3 percent for resource-based manufactures during 1990-95 (United Nations 1999). Such rapid growth in markets for high technology products can be attributed to high-income elasticity of demand and greater scope for product innovation and productivity increases (United Nations, 1999).

The objective of this study is to examine the determinants of high technology exports. There is very limited empirical study on factors that influence national high technology exports. Existing studies also tend to focus exclusively on developed countries. This study is based on data from developed and developing countries. Given the efforts by many countries to promote the development of "strategic industries," the topic is timely and of potential interest to academicians and policy makers.

Section 2 provides the literature review. Section 3 provides the conceptual framework for the study. Section 4 explains the research methodology while section 5 reports the statistical results. The last section is devoted to discussions and implications.

PRIOR RESEARCH

Changes in technology over the past few decades are responsible for the changes in the structure of wages and employment. The relative employment of more skilled workers has increased rapidly despite their higher wages, which is consistent with an outward shift of the production possibility frontier. In many industrial countries, for example, there has been higher rates of employment growth in occupations generally considered to require higher levels of expertise (Hollanders and Weel, 2002). On the other hand, new technologies allow automation, work reorganization and product redesigns that lead to reduced employment. The deskilling effects of automation (automation often deskills some tasks performed by highly trained workers) have also made it easier for multinational companies to transfer advanced manufacturing operations to low-wage developing countries (Alic, 1997). Intense competition in some high technology industries has also led to outsourcing of jobs to low-cost locations. Technical innovations requiring large quantities of highly skilled labor go through stages of maturation as the products become increasingly commercialized. As the manufacturing process becomes more standardized and low-skilled labor intensive, the comparative advantage in its production and export shifts across countries (Vernon, 1966).

Studies on the characteristics of high technology firms show that high technology firms tend to be R & D intensive, often involved with radical rather than incremental innovations and faced with challenges of exploiting technologies in markets that have international opportunities (Keeble and Wilkinson, 2000). In order to achieve growth, they underline the need to transfer technology to markets quickly and increase the firm's technological capabilities through interaction with others in the trade sector (Bowling and McGee, 1994; Boter and Holmquist, 1996).

A review of past research shows that the subject of high technology has been covered in the context of differences among national firms in creating and sustaining competitiveness in high technology. One explanation focuses on internal variables such as technology management and strategy, while another explanation focuses on factors external to the firm such as government policy, macroeconomic conditions, and availability of resources.

The institutional school advocates a "path dependent" view of competitiveness, proposing that regionally or nationally distinctive institutions are the primary determinants of national competitiveness. Schumpeter (1942) argued that large, integrated oligopolistic corporations serve as engines of economic activity, promoting growth and efficiency. This economic vitality, however, did not stem directly from the invisible hand, but from internal economies of scale and market power. He describes technological innovation as the most significant competitive force due to its potential to dramatically alter the shape of industries and national economies.

The first group of modern institutional literature developed in the 1980s was in response to Japanese competitive success in certain industries such as consumer electronics, automobiles and memory chips. Gerlach (1992) argues that the unique banking, equity and trading relationships within the partially integrated networks associated with Japan's industrial groups (often referred to as Keiretsu) provided advantages over decentralized U.S.-based firms. Competitive success was largely attributed to innovation, high fixed costs strategy and cooperation between associated firms.

In short, most of the studies pertaining to internal variables as sources of national competitiveness concentrate on factors associated with successful R&D projects, management and motivation of scientists and engineers as well as the dynamic role of manufacturing and process technology in new product development (Roberts, 1988; Horwitch ed, 1986; Chesbrough and Teece, 1999).

Modern neoclassical trade theory, developed from the seminal works of Smith (1776), Ricardo (1996), Marshall (1890), and Heckscher-Ohlin (1991) attributes national competitiveness to a series of market-related variables such as factor endowments and allocative efficiency. Specialization and trade is expected to increase national productivity and consumer well-being.

Some studies underscore the importance of publicly financed research institutions for high technology industries, inter-region communications flows, labor mobility and innovative learning (Saxenian, 1994, 1990: Feldman and Massard, 2002). Marshall (1989) observed that external economies of scale occurred in regions where producers benefited from sharing the costs associated with common external resources such as infrastructure and services, skilled labor, specialized suppliers, capital and a common base of knowledge.

Some studies emphasize the important role of institutional and policy changes such as privatization and deregulation in several countries in creating new market opportunities for technology-based firms. Government policies in many countries provided for technology grants and helped in the development of science and technology parks and incubators. The role of universities is also mentioned as an important source of knowledge and spillovers to innovative activity of small and medium-sized firms, thus triggering steady growth in the development of high technology (Levy, 1998; Keeble and Wilkinson, 2000). The current U.S. position as a leading producer and exporter of high technology goods is attributed to a combination of factors: commitment to investments in science and technology, the scale effects derived from serving a large, demanding domestic market and its openness to foreign competition (National Science Foundation, 2002).

There is a growing literature on the geographical concentration and clustering of competitive industries. Local clustering is sought to increase the flow of information within the industry and the rate of diffusion of innovations. The presence of customers, rivals and suppliers in the same location is considered important in promoting efficiency, specialization and innovation (Porter, 1990; Methe,' 1991; Arthur, 1990; Keeble and Wilkinson, 2000). In high technology industries, affiliates tend to agglomerate in selected locations in the world, often near local firms and other institutions. This is illustrated by the clustering of biotechnology and microelectronics firms in California, electronics and software firms in Munich (Germany), Goteborg (Sweden) or Penang (Malaysia). The attraction of multinationals to local clusters reflects the dynamic comparative advantages of host countries such as availability of scientists and engineers, low cost skilled labor, training facilities, or government support for technological upgrading (United Nations, 2001).

A number of studies describe important institutional stimulants that reinforce the development of high technology. They include labor mobility, the availability of specialty suppliers and services such as contract manufacturing, venture capital and legal assistance. Studies by Angel and Kogut show that inter-firm mobility allowed for a rapid circulation of knowledge and information among high technology firms (Roberts, 1991; Kenney, 2000). Many countries have designed their own distinct policies to create and sustain high technology firms. The potential environmental influences include a world class university, an affiliated science park where research can be commercialized and the availability of ample source of venture capital. They also include adequate infrastructure such as transportation system and a pleasant physical environment (Roberts, 1991; Preer, 1992; Oakley & al, 1999; Keeble and Wilkinson, 2000).

Many countries rely on inward investment (FDI) for the production and export of technologically sophisticated products. An FDI-assisted export strategy provides rapid entry into complex activities, along with continuous access to new technologies and close integration into global markets and networks. Upgrading of local factors and institutions becomes critical to maintain the momentum (Dunning, 1998; United Nations, 1999).

None of these explanations is fully sufficient by itself in explaining cross-national variations in competitiveness. The most comprehensive framework for analyzing external conditions that influence a firm's ability to compete in particular industries is provided by Porter. Competitiveness is measured by the presence of substantial and sustained exports to other nations. Porter describes four interdependent clusters of external conditions: a) factor conditions: A nation's endowment in factors of production such as skilled labor, capital, physical resources and infrastructure; b) demand conditions: the sophistication, size and nature of the domestic market for a firm's products; c) related and supporting industries: the availability in the nation of supplier and related industries that are internationally competitive and d) firm strategy, structure and rivalry: strategy and structure of domestic firms, degree of concentration and vertical integration as well as inter-firm rivalry (Porter, 1990; 1998; Porter, Takeuchi and Sakakibara, 2000). He also states that in high technology industries, early competitors emerge out of factor creating mechanisms i.e., people trained in particular industries will apply their knowledge and skills to enter an industry where there is actual or potential demand.

These contributions represent important first steps in explaining the factors that create and sustain the competitiveness of high technology firms. However, these studies are often devoid of empirical examination and largely focus on high technology investment. Empirical research on high technology trade has been hampered by lack of reliable data. There is a need for an in-depth examination of important factors that influence high technology exports to address any policy prescriptions.

CONCEPTUAL FRAMEWORK

Contemporary research provides two major explanations as to why a nation's firms are able to create and sustain export performance in high technology industries. One focuses on factors internal to the firm such as technology management and strategy, while the other explanation focuses on factors external to the firm such as government policy, availability of human and natural resources, economic conditions etc. This paper will focus on the latter and tries to establish some of the major external influences of a nation's high technology exports.

From the preceding literature review, a number of external conditions are expected to influence high technology exports. They include an adequate infrastructure, availability of highly skilled manpower, support personnel and services, home demand conditions and inward investment (Porter, 1990; Horwitch, 1986; Morone, 1993; Keeble and Wilkinson, 2000). Three key variables are used to examine their influence on high technology exports: National technological infrastructure; home demand conditions (sophistication of buyers), as well as inward foreign direct investment (FDI).

In establishing the theoretical model, the paper draws on Porter's diamond theory.

[FIGURE 1 OMITTED]

National Technological Infrastructure

A country's technological infrastructure is critical in supporting technology-based development. Its stock of scientific, technical manpower/knowledge and the availability of modern physical infrastructure all contribute to competitive success in knowledge intensive industries. Comparative advantage in sophisticated industries largely depends on the rate of improvement and innovation. National firms that lack adequate technological infrastructure face grave difficulties in innovating than rivals who possess them (Porter, 1990) and this will adversely affect their ability to produce and export high technology goods.

Competitive advantage in high technology is increasingly based on the possession and upgrading of created and specialized resources (Dunning, 1992). The increasing importance of these kinds of resources stems from the changing demand and supply conditions in factor markets. The market for such resources is often characterized by wide product market fluctuations and rapid technological change (Sabel, 1990; Freeman and Perez, 1988). The increasing specialization, mechanization and efficiency of production processes reduce the need for basic raw materials and unskilled labor and increase the demand for well-educated and skilled personnel. Japan's supply of highly trained electrical engineers, for example, has clearly given the country a competitive advantage in a host of industries such as robotics and consumer electronics. Conversely, its poor performance in software and aircraft can be traced to the dearth of specialized personnel (Porter et al., 2000).

A number of studies suggest that a country's trade performance in high technology products can be explained by the level of its R&D expenditures (OECD, 1995; Le, 1990). A recent study focusing on the machine tool industry also indicates that export performance correlates strongly with applied R&D activity (Kalafsky and MacPherson, 2001). Based on this literature, the state of a nation's technological infrastructure is hypothesized to influence its high technology exports.

H1: The state of a nation's technological infrastructure has an influence on its high technology exports.

Home Demand Conditions

Home demand is important for national competitive success in industries with high R & D, substantial economies of scale in production and high levels of uncertainty (Porter, 1990). Early home demand helps local firms to move sooner than foreign rivals to become established in an industry. The structure of home demand affects the rate and direction of technological change in an industry by favoring the entry of new, innovative firms. Sophisticated and demanding buyers pressure local firms to meet high standards of quality, features and service (Porter, 1990). Nations gain competitive advantage in industries or industry segments where the home demand gives local firms a clearer or earlier picture of buyer needs (Porter, 1990). In countries where local customers are knowledgeable and demanding, firms must work harder to satisfy their sophisticated and changing needs. Sophisticated buyers push companies to employ advanced technologies and make higher value products. In Japan, for example, customers demanded high quality audio-systems in their cars similar to the ones they used at home. Manufacturers had to meet these challenges in order to remain competitive. Such innovation further leads to competitiveness in global markets.

H2. The state of a nation's home demand condition has an influence on its high technology exports.

Foreign Direct Investment

Inward foreign direct investment has multiple effects on the economies of host nations. Besides its positive contribution to a country's national product, employment and balance of payments, it contributes to diffuse new and advanced technologies in host countries. Firms disperse activities through foreign direct investment in order to accumulate expertise, to perform R&D and to develop relationship with major customers (Dunning, 1998). Developing countries with limited indigenous technological capabilities have managed to export high-technology products largely due to the presence of foreign multinationals. For example, in Malaysia and Philippines, high technology exports accounted for 59 percent of total manufactured exports in 1999 compared to that of 35 percent for the United States (World Bank, 2000).

Many countries face challenges in achieving competitiveness in products that involve complex processes with high learning and skill requirements. FDI can help in this effort given the significant role of multinational corporations in technology transfer and trade. Multinational firms can set up advanced manufacturing design and development capabilities and also help expand export opportunities through their global marketing networks. These networks provide foreign affiliates privileged access to internal and external international markets. Domestic firms, in turn, can gain access to these markets by linking themselves to these international networks through subcontracting and other arrangements (United Nations, 1999). For example, the rapidly growing exports from Ireland and the Philippines over the last few years can be largely attributed to the wave of new FDI (United Nations, 1999). A recent study by the UN investigated the relationship between inward FDI and export performance. It found a positive and significant correlation between FDI inflows and manufactured export performance (52 countries). The impact of FDI rises with the technology intensity of exports (UN, 1999). Thus:

H3: The greater the level of inward foreign direct investment in a nation, the higher will be its high technology exports.

RESEARCH AND METHODOLOGY

The study is based on data gathered from 70 countries located in different geographical areas. Complete data were available for 55 countries accounting for 97 percent of world high technology exports. The following countries were included in the study: Argentina, Australia, Austria, Belgium, Brazil, Bulgaria, Canada, Chile, China, Colombia, Costa Rica, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Ghana, Greece, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Kenya, Korea, Latvia, Lithuania, Malaysia, Mexico, Netherlands, New Zealand, Nigeria, Norway, Pakistan, Peru, Philippines, Poland, Portugal, Russia, Singapore, Slovakia, Slovenia, S Africa, Spain, Sweden, Switzerland, Thailand, Turkey, United Kingdom, United States, and Venezuela.

Factor analysis and multivariate regression analyses were employed to investigate the relationship between the dependent variable, high technology exports and a set of economic variables. Four variables that were perceived to relate to high technology exports (based on past research) were selected: Total expenditures on R&D per capita (R&D), scientists and engineers engaged in R&D (per million people) (SE), sophistication of buyers and inward FDI. The R&D and SE variables were combined into one variable using factor analysis. The new variable, technological infrastructure is entered as an independent variable in the regression analysis. The study uses multiple regression analysis to determine the link between high technology exports and these independent variables. Multiple regression is the most widely used statistical technique to analyze the relationship between a single dependent variable and several independent variables. All the independent variables are included in the same model ie., all the independent variables selected are added to a single regression model. All variables must pass the tolerance criterion to be entered into the equation.

The variables with various degrees of significance resulting from the regression analysis were then shown in order of importance based on the beta coefficients/t-values. This means that the variable with higher beta coefficient/t-value is more significant than the other factors in explaining high technology exports.

MEASURES

Dependent Variable

High technology includes all products with high R&D intensity such as computers and office equipment, consumer electronics, semi-conductors, communication services, software and related services, drugs and medicines, aerospace and scientific instruments (OECD, 1999; World Bank, 2001). The high technology exports variable (HTX) is intended to measure national competitiveness in the high technology sector. The data is expressed in terms of millions of current U.S. dollars and obtained from the World Bank's World Development Indicators (2001). Log of HTX is used in the study to render the distribution nearly normal and the error term homoscedastic. It represents high technology exports for 2000. The high technology variable is lagged by one year. Data on high technology has been quite unreliable and often based on a small group of developed nations. The data for 2000 was used in view of its scope of coverage i.e., it tends to cover more countries and based on a time period that was characterized by a healthy growth in global investment and exports of high technology.

Independent Variables

The theoretical framework is largely based on Porter's model of national competitiveness. Porter provides a broad concept of competitiveness in order to explain why nations can compete in sophisticated industries and activities involving high productivity. Three independent variables are selected: National technological infrastructure, home demand conditions and inward foreign direct investment.

A nation's technological infrastructure (TI) plays a critical role in creating and sustaining competitive advantage in high technology. Competitiveness rarely results from only one single determinant. Several advantages interact to create conditions for firms to succeed internationally. Technological infrastructure includes the development of a nation's scientific and technological resources to support technology-based development. Trade performance in high technology industries is largely based on a country's level of R&D expenditures. Competitiveness in high technology is also inconceivable without the availability of highly skilled scientists and engineers to create and sustain a significant level of innovative activity (Keeble and Wilkinson, 2000; OECD, 1997).

The technological infrastructure factor contains two variables: Total expenditure on R&D per capita as well as scientists and engineers engaged in R&D, a good indicator of a nation's state of scientific infrastructure. Data on total R&D expenditures per capita for 1999 (U.S. $ per capita) were obtained from the World Competitiveness Yearbook, 2001. Data on the number of scientists and engineers engaged in R&D (per million people) were obtained from the World Bank's World Development Indicators. They represent data for 1999. It is also hypothesized that high technology exports is influenced by home demand conditions (sophistication of buyers) (HDC). Sophisticated and demanding buyers pressure local firms to meet high standards in terms of product quality, features and service. The data on sophistication of buyers needs were obtained from the Global Competitiveness Report and represents data for 1999. The measure was taken on a scale of 1-7 based on whether a country's buyers are knowledgeable, demanding and buy innovative products. A higher measure such as 6 or 7 indicates that a country's buyers are sophisticated and demanding.

Inward foreign direct investment (FDI) has multiple effects on the economies of host countries. It contributes to transfer new and advanced technologies to local firms as the latter establish various alliances with foreign firms. Such collaborative arrangements often lead to the development and exports of new and advanced products. Collaborative arrangements include joint R&D, joint ventures, licenses, long-term supply arrangement between local and foreign firms. Data on inward investment were obtained from the World Bank's World Development Indicators (2000). It represents data for the period 1999. The inward investment data were taken as a % GDP.

RESULTS

Table 4 provides the mean, standard deviation and correlation matrix of variables in the study. The result largely confirms the hypotheses that each of the independent variables is related to high technology exports. The technological infrastructure variable and the high technology exports matrix have a correlation of .24 (p< .05), suggesting a positive association with the dependent variable. Home demand conditions (sophistication of buyer needs), (.60, p< .01) and inward FDI (.76, p<.01) are also highly correlated with the dependent variable. Coefficient correlations are quite low indicating that the predictor variables are different from each other. An examination of the variance inflation factors also shows levels of collinearity that does not substantially increase the variance of the regression coefficients. The VIF values range from 1.43 to 1.97. VIF values of 5.3 (Hair & al 1992) and 10 (Studenmund 1992) have been suggested as cutoffs for multicollinearity.

Table 5 provides the results of factor analysis. It shows the variables loading on the factor, technological infrastructure (TI). Table 6 shows the results of the regression analysis. The result largely confirms the hypothesis that each of the variables influences high technology exports.

First, the coefficient of determination is 0.65 suggesting that approximately 65 percent of the variation in high technology exports is explained by the three variables. The F-ratio, which explains whether the result of the regression model could have occurred by chance, has a value of 31.38 (significant at .000), meaning that the results of the regression model could hardly have occurred by chance. The model has achieved a satisfactory level of goodness-of-fit in predicting the dependent variable.

In regression analysis, beta coefficients / t-values can be used to explain the relative importance of the three variables in terms of high technology exports. The results show that all the three variables remain significant in the equation with a different value of beta coefficients / t-values. Inward FDI (beta = 0.628, t-value=6.29) carries the heaviest weight in explaining high technology exports. Sophistication of buyer needs is the next significant influence on the dependent variable with a beta of 0.38 (t-value of 3.24). Technological infrastructure is also a significant predictor of high technology exports (beta=0.21, t-value= 2.02). The first two variables are highly significant at p <.01, while the technological infrastructure variable is significant at p<.05.

DISCUSSION AND IMPLICATIONS

In a globalizing world, export success can serve as a good measure for the competitiveness of a nation's high technology industries. Exports in high technology have been largely dominated by a small group of nations. For most other countries, comparative advantages lie in primary commodities and traditional manufactures. One major development in international trade over the last two decades is the changing pattern of world trade. There is a consistent trend for exports of technology-intensive products (high technology goods) to grow faster than others. World exports of high technology goods grew at around 12 percent per year compared to 1.4 percent for primary products for the period 1990-1995 (United Nations, 1999). Thus, it is important for countries to create and sustain export competitiveness in industries that are so vital for productivity and economic growth. This study identifies some of the most important determinants of high technology exports in a nation. It establishes that a nation's technological infrastructure, home demand condition (sophistication of buyer needs), as well as inward investment has a strong influence on a nation's high technology exports.

The state of a nation's technological infrastructure has a positive and significant influence on its high technology exports. Besides investing in physical infrastructure, developing a strong, dynamic human resource base is probably the most critical long-term element for a successful export-oriented policy. Without an educated, skilled workforce, productivity will suffer and efforts to compete in the global economy will be undermined. As industries become more technologically sophisticated, they also become more knowledge-intensive thus placing new demands on the skills and capabilities of the labor force. Domestic capacity building requires targeted incentives for creating specific skills required by a particular high technology industry with export dynamism. In short, success in high technology industries requires not only the requisite technological infrastructure but also a conducive institutional and policy framework.

The study also underscores the important role of home demand conditions in influencing exports in high technology. Home demand shapes the rate and character of improvement and innovation by a nation's firms. Firms can be competitive in segments, which represent an important share of local demand before they explore foreign market opportunities (Porter, 1990). Home demand is often perceived as more certain and easier to forecast. Its size and rapid growth leads firms to adopt new technologies faster and become well established in an industry. This paves the way to successful competition.

Inward investment has the potential to contribute to export competitiveness in high technology. To build a more sustainable and dynamic export base, it is important to improve human capital and attract high quality investment that allows for sophisticated activities and functions. In Singapore and Malaysia, for example, foreign multinationals have set up advanced manufacturing, design and even development capabilities thus allowing them to export a variety of high technology goods. The result of this study is consistent with an earlier United Nations study on inward FDI and export performance. The study found a positive and significant correlation between inward foreign direct investment and exports in high technology. A one- percent rise in inward FDI was stated to be associated with 0.19 percent rise in the share of high technology in manufactured exports (United Nations, 1999).

High technology development may not always be realized just through domestic innovative activity. Foreign technology can be acquired through FDI, license or even acquisition of a high technology firm. Productivity gains are often greater from the latter than from producing the technology within the firm.

LIMITATIONS

In establishing the theoretical model, this paper draws on Porter's diamond theory and provides an empirical examination of the role of technological infrastructure, home demand conditions and foreign direct investment on export competitiveness in high technology. Porter's work complements the theories of Ricardo and Heckscher-Ohlin. However, there has been limited empirical work to establish the effectiveness of this model in explaining competitiveness in specific industries and/or sectors. One potential limitation is the non-inclusion of other variables mentioned in Porter's model due to the absence of reliable and comprehensive data. This includes the role of related and supporting industries and that of domestic rivalry. Examination of these additional variables will contribute to a greater understanding of competitiveness in the high technology sector.

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Belay Seyoum (seyoum@nova.edu) is Associate professor of International Business Studies at Nova Southeastern University, Huizenga School of Business, 3301 College Avenue, Ft. Lauderdale, Fl.33314. He earned his doctorate at McGill University, Canada. His research interests are in the areas of competitiveness, transfer of technology and trade policy.

TABLE 1

Leading High Technology Exporters (1999)

        Category                  Countries         $ Mill. US

                                Ireland (47%)         27,929
 High technology exports         Korea (32%)          41,452
                               Malaysia (59%)         39,996
 accounting for > 30% of      Netherlands (33%)       39,917
                              Philippines (33%)        8,479
  manufactured exports         Singapore (61%)        60,032
                               Thailand (32%)         13,999
                                  USA (35%)          184,239

 High technology exports   Hong Kong (China) (21%)     4,319
                                Denmark (20%)          6,493
accounting for 20- 30% of       Finland (24%)          8,547
                                France (23%)          55,834
  manufactured exports          Hungary (23%)          4,839
                                 Japan (27%)         104,794
                                Mexico (21%)          24,070
                                Sweden (22%)          15,100
                              Switzerland (22)        16,283
                                   UK (30)            66,942

Source: World Bank, World Development Indicators, 2001

TABLE 2

Top Ten High Technology Exports (1997) (Thousands of US$)

                  Developing Nations

Export category

Electronic integrated circuits       49,127,995
Parts of automatic data
processing machines                  25,343,488
Storage units                        22,393,643
Input or output units                15,289,681
Diodes, transistors etc.             6,822,845
Line telephones etc.                 5,626,230
Video recording and reproduction
apparatus                            4,962,619
Printed circuits                     4,050,710
Digital computers                    3,920,626
Digital processing and storage
units                                3,610,907

Total                               141,148,743
Total high tech exports             184,746,341
Above ten items as % of
total high technology exports            76

                  Developed nations
Export category

Electronic integrated circuits       79,558,903
Parts of automatic data
processing machines                  58,640,853
Aircraft etc.                        37,889,184
Digital processing and storage
units                                29,668,113
TV, radio transmitters               24,066,462
Storage units                        23,454,389
Input or output units                22,801,798
Line telephone etc. equipment        21,934,176
Parts of line telephony equipment    17,278,829
Parts of jet, turbo prop engines     13,172,583

Total                               328,465,291
Total high tech exports             608,304,139
Above ten items as % of
total high technology exports            54

Source: INTECH, 2000

TABLE 3

Technology Balance of Payments: Net Royalty Receipts (mill. US$)
For Selected Countries (1999-2001)

Country

Australia             2320
Austria               -509
Belgium               -278
Brazil               -1190
Bulgaria              -5.1
Canada               -1906
Chile                 -339
China                -1249
Colombia              -65
Finland               214
France                185
Germany              -2281
Hong Kong, China      -284

Country

India                 -412
Israel                 27
Italy                 -774
Korea, Rep.          -2289
Malaysia              -574
New Zealand           -261
Norway                -214
Philippines           -151
Poland                -482
Russian Federation    -75
South Africa          -78
Thailand              -693
United Kingdom        1843
United States         2590

Source: World Bank, World Development Indicators, 2000-2002

TABLE 4

Means, Standard Deviation and Correlation Matrix, 1999

                         Mean  S. D   FDI     HDC     TI      HTX

Foreign direct
 investment (FDI)        6.60  0.85  1.00    0.55 *  0.36 *   0.76 *
Home Demand conditions
 (HDC)                   4.51  0.99  0.55 *  1.00    0.60 *   0.60 *
Technological
 infrastructure (TI)     0.04  0.97  0.36 *  0.60 *  1.00     0.24 **
High technology exports
 (HTX)                   6.35  1.22  0.76 *  0.60 *  0.24 **  1.00

*** p < .10; ** p < .05; * p <.01

TABLE 5

Factor Analysis : Factor and Variable Description

                                              Factor loadings
Technological infrastructure (TI)
 a) Total expenditures on R&D per capita           0.89
 b) Scientists and engineers engaged in R&D        0.89
Percent of variance: 79.50%

TABLE 6

Results of Regression Analysis

Numbers represent t-values
Dependent variable: High Technology exports (HTX) (2000)

Intercept                                        -1.90 ***
Foreign direct investment (FDI)                   6.29 *
Home demand conditions (HDC)                      3.24 *
Technological infrastructure (TI)                 2.02 **

DF                                                3.00
R Square                                          0.65
F value                                          31.38 *

*** p < .10, ** p < .05, * p < .01