University of Michigan



the Changing Dynamics of the Global Market for the highly-skilled

Andrew Wyckoff[?]

Martin Schaaper1

Organisation for Economic Cooperation and Development

Prepared for Advancing Knowledge and the Knowledge-Economy Conference held at the National Academy of Science, Washington, D.C. 10-11 January 2005

During the 1990s, the US was able to sustain rapid growth in skill-intensive industries like software, IT and R&D without running into severe shortages of scientists and engineers that would have slowed the expansion. This period of growth has made the US the exemplar of the “knowledge-based economy” and the benchmark by which many other countries compare themselves. This success is in spite of the fact that for decades, experts have warned that US competitiveness is threatened by the poor performance of its schools and the weakness of its students in fundamentals like reading, math and science. A prime explanation to this paradox is that the US has been able to attract the highly-skilled from abroad.

This paper analyses the global market for the highly-skilled. It marshals available data, albeit of a mixed-quality, to describe the state of this market at the turn of the 20th Century and then analyses the dynamics that are likely to affect this market in the near-term. A number of policy implications are outlined especially regarding the location of research and the related infrastructure.

A Nation at Risk?

1. Twenty-two years ago an influential study entitled “A Nation at Risk” hit the desks of Washington’s policy makers and analysts. The basic premise of the report was that a key factor undermining America’s competitiveness was the failure of its schools to produce properly skilled workers.

“Our Nation is at risk. Our once unchallenged pre-eminence in commerce, industry, science, and technological innovation is being overtaken by competitors throughout the world…….The world is indeed one global village. We live among determined, well-educated, and strongly motivated competitors. We compete with them for international standing and markets, not only with products but also with the ideas of our laboratories and neighbourhood workshops. America's position in the world may once have been reasonably secure with only a few exceptionally well-trained men and women. It is no longer.” (NCEE, 1983)

2. Identifying the Japanese, South Koreans and Germans as competitors who were taking over key sectors like autos, steel and machine tools, the report linked these developments to a “…redistribution of trained capability throughout the globe.” The report called for a reform of the US educational system so as to “…keep and improve on the slim competitive edge” the US still retained, noting that “Learning is the indispensable investment required for success in the ‘information age’ we are entering.” (NCEE, 1983)

3. The report outlined a number of steps that were needed to be undertaken to address the problem, including the strengthening of high school graduation requirements, raised standard for admissions to colleges and universities, a refocusing on the basics in schools and greater accountability on the part of educators and elected officials.

4. Fast-forward to 2005, and many of the same criticisms of the US school system remain (NSB, 2005; NAE, forthcoming). Recent international tests of the achievement of 15-year olds in science and mathematics, placed the US 22nd and 28th respectively out of 40 countries participating in the test (Table 1), roughly equal to Poland, Spain and the Russian Federation. At the top of the international ranks were Finland, Japan, Korea and Hong Kong, China. While significant changes have occurred and a number of efforts to improve US schools have been launched, it appears that after two decades the relative performance of US schools is little changed.

US as the Benchmark

5. This mediocre position in the international school achievement rankings stands in stark contrast to the position most observers attribute to the US as a fiercely competitive and innovative country that represents the target other countries use to assess their innovativeness, R&D performance and productivity. This was especially true during the 1990s, when the US rate of productivity growth doubled in the second-half of the 1990s relative to the average obtained over the previous two decades. This led many to question if the US had a new economy, where growth was based on a different formula of science, technology, human capital and managerial expertise. Various international organisations and researchers, including the OECD, launched projects to assess these assertions and generally concluded that while no one factor could be identified that explained the differences in performance – in fact the US did outperform most of its large OECD competitors (OECD, 2000 and 2003b). Two of the most widely quoted rankings of “competitiveness” – IMD’s World Competitiveness Rankings and the World Economic Forum (WEF) Competitiveness Index Rankings – rank the US number 1 and 2 respectively, unchanged from 2003. Japan and Germany, the key challengers to the US in the 1980s, are listed at number 9 and 13 respectively by the WEF and 23 and 21 by IMD (WEF, 2004; IMD, 2004).

6. This performance made the US the benchmark against which other countries and regions gauged their performance. Implicit in the pledge by European Union Heads of State meeting in Lisbon in 2000 to make Europe the most competitive and dynamic knowledge-based economy in the world was the goal to catch up to the US in terms of IT, R&D, business environment and financial markets, albeit with greater social inclusion (European Commission, 2000).

7. How could US achieve this status even though its schools are still relatively unchanged from the time when A Nation at Risk was written? The answer lies in part, because the authors focused on the average achievement of the domestic population – the hump in the bell curve distribution of skills – when since the 1980s, the US has been very good at increasing the tail of its skills distribution thanks to its very good universities and its ability to attract foreign talent, especially in the fields of science & engineering.

The 1990s: the Tail

8. The international flows of the highly-skilled are not a new phenomenon (OECD, 1970). In the post-war period the flows were largely from Europe to the US and were due to the pull of a greatly expanded S&T post-war and cold-war US system and the push of a relatively less advanced and resourced European system. The beneficiaries of these flows in the US were largely academia and government laboratories, which were engaged in fundamental, basic research.

9. The 1990s marked a significant change in these flows as the primary source shifted from Europe to Asia. The US was still the main destination but the beneficiaries had broadened, where now industry, engaged in applied, developmental research was the main employer of the foreign-born highly skilled.

10. The push and pull factors have changed where the key port of entry for attracting the highly-skilled is through the opportunity to study at world-class colleges and universities. In 2000 there were 1.5 million foreign students enrolled in higher education institutions in OECD countries, about double the level of 20 years ago (OECD, 2004a). The United States, United Kingdom, Australia and Canada together represent the destination for more than half of all foreign students in the OECD area while Asia accounts for almost half (43%) of the all international tertiary-level students in the OECD area. China (including Hong Kong, China) alone accounts for 10% of all these international students in the OECD area.

11. These trends are reinforced when the focus shifts to the graduate-level. In relative terms, Switzerland, the United Kingdom and Belgium have the largest share of foreigners among their PhD-level students (Figure 1), but in absolute terms, the United States receives more foreign PhD-level students than all other OECD countries combined, with the number of foreign PhDs awarded in science and engineering more than doubling between 1985 and 1996 in the United States. Every year between 1992 and 2001, almost 10 000 non-US citizens were awarded a doctoral degree in the sciences or in engineering (S&E) in the United States (Table 2). In 2001, this number stood at 9,188, of which a little more than a quarter were Chinese citizens (see Figure 2). The second largest group of foreigners were Koreans (9.4%), followed by Indians (8.8%) and students from Chinese Taipei (5.9%). Asian students therefore represent the bulk of S&E PhDs awarded to foreigners in the United States. Holders of temporary visas represented 86% of these foreign doctorate recipients, a trend that increased during the 1990s (see Figure 2)

12. Having studied in the US, about two-thirds of the foreign recipients of US S&E doctorates (1998-2001) have “firm plans” to stay in the US, a rate that is up significantly from 1994-97 when only 57% indicated an intention to stay (NSF, 2004). Stay rates differ by nationality of the student: about 50% of foreign students from France and Italy indicated firm plans stay while to 67% of those from China and 73% from India did. For selected fields like mathematics/computer science, the stay rate of large pools of foreign doctorate recipients from India and China was even higher (71% of Chinese and almost 80% of Indians).

13. In addition to the flow of students who come to study and then decide to stay on, the United States also benefits from a large in-flow of foreign scholars (non-immigrant, non-student academics) (Figure 3). Again, the bulk (40%) of these scholars who go to the US are from Asia where China and India together account for one-quarter of the total.

14. Accurate global data on the flows of people, especially the highly-skilled are not available, but the Directorate for Employment, Labour and Social Affairs at the OECD has constructed a database of censuses that were held around the year 2000, which for the first time provides a more reliable picture of immigrant populations. Calculations based on the US decennial census of 2000 estimate that there was a stock of over 8 million “highly qualified[?]” foreign-born, immigrants in the United States (Dumont and Lemaître, forthcoming). As can be seen in figure 4, the US stock accounted for more than the next 8 largest OECD member countries combined. The NSF analysis of the 2000 Census shows that 22 percent of the college graduates in S&E occupations are foreign born. As the focus shifts to doctorates the percentage increases to 37 percent and goes even higher in some select fields: about 45% for mathematical and computer science occupations and over 50% for engineering occupations. (NSF, 2004).

15. This inflow of foreign students who stay on and the arrival of scholars and highly educated during the 1990s is one of the factors that enabled the explosive growth of the ICT sector, particularly the software segment where human capital is a key input. Saxenian shows that nearly a third of Silicon Valley’s 1990 workforce was composed of immigrants, two-thirds of them from Asia, primarily China or India (Saxenian, 1999). Between 1995 and 1998, Chinese and Indian engineers started 29% of Silicon Valley’s technology companies, up from 13% in the 1980-84 period.

16. The dynamism of the US S&T system in the 1990s led foreign firms to undertake R&D in the US through their affiliates. Between 1994 and 2001, R&D expenditures by foreign affiliates operating in the US increased at an annual rate of 7.6% in constant prices, about 40% higher than the growth rate in all US R&D performing firms. The level of employment performing this R&D increased by 35% so that by 2001, 13% of all US industrial R&D employment were employed by foreign affiliates operating in the US. (Moris, 2004)

17. While brain drain and gain is a phenomenon that has existed for centuries, the sharp increase in demand from the US effectively meant that this part of the labour force, or at least key segments of it, had become global. Although the source of these highly-skilled professionals was global, in fact the demand was narrowly based in the US.

The New Millennium

18. The factors that combined to create a global market for the highly-skilled in the 1990s have changed with the arrival of the new millennium where the position of the US as the main driving force generating demand has diminished and the opportunities in the main supply countries have improved. Combined, the market has become more truly global, posing a significant challenge for the US and its system of innovation and an opportunity for other countries.

The post 9-11 climate

19. Many have noted that the new security precautions put in place after the terrorist attacks of 2001 have made the US less welcoming to foreigners, including the highly-skilled (Buderi, 2003; Nye, 2004; Mahroum, 2002b). The horror stories of airport searches, refused visas and months spent trying to gain entry circulate quickly in this wired circle and they have had a chilling effect. Foreign student enrolments in the US high education institutions dropped for the first time in 30 years in 2003-04 (IIE, 2004), (Figure 5) and high-skilled related work visa applications are down 19.4% from 2001 to 2003 with the refusal rate of these applications increasing from 9.6% to 17.8% (NSF, 2004). A 2003 report by the American Institute of Physics reported a 15% drop in international students entering US physics programmes, and about 20% of those who were admitted were unable to start because of visa problems (Armstrong, 2003). These trends have made the headlines, generated US Congressional Hearings and led to new, more streamlined procedures (Science and Government Report, 2004; API, 2004). In short, there is evidence that those in control are trying to strike the right balance between improving security and making adjustments to keep this important flow coming; but what many miss is that concurrent with this less-friendly environment (the pull of the US) is a significant change abroad in the forces that pushed these people to the US in the first place.

EU

20. Aside from the US, the single largest regional block of R&D and concentration of researchers is in Europe. In this sense, Europe is the other key buyer in the global market for the highly-skilled. Over the course of the 1990s, the European research area was a collection of national systems with very little coordination. Gradually that has changed as the European Commission have exerted more influence, as central funding for research has increased and as it becomes clear that to compete on the world stage with players like the US, a more cohesive European strategy is needed (European Commission, 2003). This change in mind set became most apparent at the Lisbon Summit of Heads of State in 2000 which set the goal for Europe “…to become the most competitive and dynamic knowledge-based economy region in the world” and the follow-up summit in Barcelona in 2002 that set a quantitative target of increasing the EU’s R&D intensity (total R&D / GDP) from about 1.9% to a level approaching 3.0% by 2010 (European Commission, 2002).

21. Since at least half of R&D spending goes to pay the wages of researchers, increasing R&D by this amount will require a significant increase in the number of researchers. Estimates of the number of additional researchers needed to meet R&D spending targets depend on the assumptions made, but if it is assumed that R&D spending per researcher in the EU begins to look more like that of the US and that the annual rate of growth in GDP is the same as it has been for the past decade (2%), then the EU would need approximately 500 000 more researchers by 2010 to meet its 3% target, an increase of more than 50% over 2000 levels (Figure 6) (Guellec, 2002; Sheehan and Wyckoff, 2003). The EC itself estimates a need for an additional 700 000 researchers to reach the goal (European Commission, 2003).

22. Adding another 500 000 to 600 000 researchers to the EU workforce by 2010 will present a challenge to Europe and a potential bottleneck for satisfying the goal of 3% R&D intensity (Sheehan and Wyckoff, 2003). Few analysts believed this goal could be reached when it was set in 2000 and 2002, and even fewer think it is possible in 2005 since the R&D intensity of the EU is still hovering at 1.9%. But it is a mistake to interpret this goal simply on an analytical basis – it is a political goal and in this sense it has already begun to succeed. Innovation policy is now high up on the policy agenda of Europe to the point where Prime Ministers and Ministers of Finance are now concerned about the problem (Brown, 2005). A key element of this concern focuses on the highly-skilled. Europe faces a dual problem, as do most OECD countries: while they try to attract more researchers to bolster their R&D activity they are faced with a rapidly aging population and an increasing rate of retirement of many researchers. This combination creates a need to produce more researchers from the native population, especially from relatively untapped reservoirs like women, while at the same time becoming more aggressive about attracting the highly-skilled from abroad and stemming the outward migration of Europe’s brains[?]. Box A outlines a number of policy initiatives that have been recently launched to achieve these objectives.

Japan

23. After the US, Japan has the second largest national S&T system in the world as measured by absolute R&D expenditures and number of researchers. This effort has been sustained from an indigenous supply of highly-skilled scientists, engineers and technicians, but as Japan’s population ages and as shortages in select areas like software engineers arise, Japan is beginning to enact policies aimed at attracting highly-skilled from abroad, particularly from India and China: the general immigration law was relaxed in 1989 to ease the entry of the highly-skilled, the Ninth Basic Plan on Employment Measures (2002) extended the period of residence for a variety of immigration statuses from one to three years, exemptions from immigration restrictions have been expanded for IT technicians and foreign researchers, mutual accreditation of IT technicians with India has been launched and a postdoctoral fellowships programme for foreign researchers has been established (METI, 2003; OECD, 2004b). Japan has more than doubled (537 in 1996 to 1225 in 2000) the number of postdocs provided to foreign, mainly Asian, scientists through the Japan Society for the Promotion of Science (JSPS) Fellowship programme (Mahroum, 2002a).

24. While the flows of foreign highly-skilled people to Japan are still relatively modest, they are beginning to grow, reflecting another change in the global market for the highly-skilled. In 1992, the number of foreigners with “special and/or technical skills” registered in Japan for purposes of employment was about 85,000, this climbed modestly to about 98,000 in 1996 after which point the level grew more rapidly, reaching about 118,000 in 1998 and 169,000 in 2001 – nearly double the 1992 level (METI, 2003). Some of the fastest growing occupations include professor, researcher and engineer. Over half of all the foreign engineers in Japan come from China – a near doubling of the absolute number between 1994 and 2001. Korea is second, accounting for about 10 percent. India accounts for only about 7 percent of foreign engineers in Japan in 2001, but this represents a 53 percent increase from 2000.

China[?]

25. As Saudi Arabia and Kuwait are to world oil supply, China and India are to the international flows of brains. The huge demographic size of these countries means that the tails of the skills distribution are huge. Until very recently, they had no where to go but abroad to pursue an education and career. In fact government policy in both countries had an explicit goal of promoting the diaspora (OECD, 2001), and the US was the overwhelming destination of these people.

26. While the flows of the highly-skilled Chinese to the US are still considerable, there are several signs that the various factors that “pushed” the highly-skilled Chinese away from China are changing as the Chinese S&T system grows and opportunities to study, conduct research and work in a high-tech company expand. These developments suggest that increasingly China will become a competitor for the highly-skilled, especially for its indigenous supply.

Changes in the flow of students

27. The pursuit of higher education is an important channel for attracting the highly-skilled since many stay in their host country after graduation. Thus, changes in the international flow of students are an early indicator of likely changes in the international mobility of the highly-skilled. Two changes in the flow of Chinese students are appearing. The first is that the US’s dominance as a host country to Chinese students is decreasing. In 2002, about 63,000 of the Chinese students enrolled in OECD countries were studying in the United States, equivalent to 35% of the total number of Chinese students enrolled in OECD countries (Figure 7). While this marks an increase in the absolute number of students, it represented a decrease in the overall share as the EU attracted increasing numbers of Chinese students, almost doubling its share over the period 1998-2002.

28. The second change is that since 1999, China has greatly expanded the enrolment of students in its own universities. The trend began with the passing of the Great Cultural Revolution in the late-1970s and the initiation of examinations for entrance to institutions of higher learning, but it was not until the rapid economic growth and the demand for highly-skilled labour in the 1990s that significant numbers of bachelors, masters and doctorates began to matriculate. The number of bachelors and masters degrees conferred in 1999-2003 was nearly double the 1982-1989 level while the number of doctorates increased by a factor of 12, from about 5,000 to 67,000 (Song and Xuan, 2004) (Figure 8). This rapid growth is likely to continue since the number of doctoral students admitted has rapidly increased, jumping from about 14,500 in 1998 to 48,700 in 2003. The majority of the doctoral degrees earned between 1992 and 2003 in China were for engineering (38 percent of the total), natural sciences (22%) and medicine (15%). In comparison, the NSF reports that about 200 Chinese students earned S&E doctorates in the US in 1986, a number that increased to almost 3,000 in 1996 after which point it declined in 1997 and rose slightly in 1998 – a change in trend attributed to the possibility of increased capacity for graduate education in China (Johnson, 2001). As can be seen from Table 2, US doctorate awards in S&E to East Asians started to decline in 1996 -- significantly before the terrorist attacks in the US and just as the Chinese awards of doctorates began to surge (Figure 8).

The expanding capacity of Chinese science & technology

29. Concurrent with this shift in the flows of Chinese students is the growth of the Chinese science and technology system. This is evident from measures such as the number of researchers, the level of R&D being performed and the establishment of business R&D centres.

Researchers

30. In most economies, the number of researchers has been growing steadily over the last decade (Figure 9). The data for China show slow growth between 1991 and 1997, followed by a drop in 1998 and a slight recovery in 1999. Since 1999 however, the figure has soared from around 531 000 in 1999 to around 811 000 in 2002. Part of this growth can be attributed to improved measurement, but it is also associated with an explicit policy to increase the national R&D effort significantly during the 10th Five-Year Plan (2001-05)[?]. While differences in terms of quality may exist, China now counts more researchers than Japan (approximately 676 000 in 2001) and is quickly approaching the level of the EU (1 million in 2001) (OECD, 2004c).

R&D Expenditures

31. Since about half of all R&D expenditures goes to pay wages of researchers, the level of Chinese R&D has grown significantly as well: total R&D spending in 2002 reached RMB 128.76 billion – up RMB 24.52 billion (or 23.5%) from 2001 which was a 16% increase from 2000 (OECD, 2004b). Putting this expenditure into an international context is difficult because of the need to select a common currency.[?]

32. Using purchasing power parities (PPPs) as a common currency[?], China’s R&D effort has been catching up rapidly, especially since 1999, and – at 72 billion PPP dollar in 2002 – is currently positioned behind the United States (285 billion PPP dollar in 2003), the EU (202 billion in 2002) and Japan (107 billion in 2002), but ahead of all other economies, including individual Member States of the EU. Part of the growth between 1999 and 2000 is not solely due to economic factors, but is due to improved measurement.

33. Chinese R&D (GERD) expressed in current USD, converted from national currencies using exchange rates, shifts China’s position down to a level comparable to that of Korea. Using exchange rates, China spent USD 16 billion on R&D in 2001, which put it not only behind the United States, the EU and Japan, but also significantly behind Germany, France and the United Kingdom.

34. Using PPPs gives an upper bound of the level of R&D expenditure, while using exchange rates gives a lower bound. Where exactly the best estimate can be found remains a matter for discussion and further analysis. Independent of which measure is used, the growth of China’s R&D expenditure has been impressive. Between 1991 and 2002, the R&D effort increased on average by 15.2% annually in real terms[?] (Figure 10) with recent growth increasing by 20.6% in real terms annually. Looking at R&D intensity (GERD as a percentage of GDP), the Chinese R&D intensity has rapidly increased, from 0.7% of GDP in 1998 to 1.3% in 2002, well on its way to reaching the target of 1.5% by 2005. Still, China’s current proportion is only half of the proportion in the United States, which has registered the same R&D intensity of around 2.7% over the last decade.

R&D Centres

35. In an effort to stimulate business innovation, China continues to privatise its R&D institutes, converting over 1,000 centres in 2002 (OECD, 2004b). Associated with this has been the construction of over 60 industrial parks, with the intent of luring home overseas highly-skilled Chinese.

36. Accompanying this has been an inflow of multinational enterprises (MNEs) establishing R&D centres in China where a wide range of technology intensive firms such as DuPont, Ford, GM, Lucent Technologies, Motorola, IBM, Intel, Microsoft, Oracle, Siemens, GE, Nokia, Cisco and Philips have contributed to the increase in Chinese R&D. In total, estimates of the number of MNE research labs range from 300 to 600 with the bulk of them opened in the past few years (Buckley, 2004). The number of jobs involved in such affiliates is difficult to estimate. Motorola’s China R&D Institute, for example, links 19 separate R&D centres, employing some 1 600 R&D engineers. IBM’s China Research Laboratory has over 100 technical staff as does Intel’s China Software Lab in Shanghai (OECD, 2004b). European, Japanese and Korean firms continue to expand their research and business activities in China and Southeast Asia, even if North America remains a key destination for R&D-related FDI.

37. Aggregate measures of foreign direct investment support these anecdotal reports: from 1994 to 2001, the direct investment position of US MNEs in China has increased by a factor of 4 from 2.6$ billion to 10.5$ billion, an annual rate of growth of over 20 percent which is about twice as high as the overall rate of growth of overseas investment by US MNEs (Moris, 2004b). US foreign affiliates in China performed USD 506 million worth of R&D in 2000 compared to only USD 7 million in 1994 (IBID). On average, the R&D intensity (R&D / gross product) is higher for US affiliates in China (9.2%) than the average for all US foreign affiliates (3.3%).

Increased Chinese Demand for the Highly-skilled

38. These developments coupled with an explicit policy by the Chinese Ministry of Personnel of encouraging highly skilled overseas Chinese to return to China has led to a return-flow of highly-skilled Chinese that has grown on average by 13% a year in the 1990s albeit significantly below the rate of increase in the outflow (OECD, 2004b) (Figure 11). The Chinese estimate that of the 450,000 Chinese students abroad, 150,000 have returned.

39. One indicator of this growing Chinese demand for S&T personnel is the bidding up of wages that is occurring. The average labour cost for R&D personnel (FTE) in China increased by 30% (nominal terms) from 2000 to 2002[?]. This corresponds to more anecdotal information of shortages of qualified engineers that has led to wages doubling in the last 5 years, equivalent to an annual increase of 15% (Marsh, 2004). Thus while a huge wage differential exists between China and OECD Member countries for ordinary manufacturing workers, the gap for engineers and scientists is narrowing quickly.

The improved performance of the Chinese Science & Technology system

40. Growth of the Chinese S&T system is quickly translating into improved outputs as reflected in the changing composition of trade and the expansion of patenting activity both at the Chinese patent office (SIPO, State Intellectual Property Office of the People’s Republic of China) and abroad at the US Patent and Trademark Office (USPTO).

The Changing Composition of International Trade

41. The composition of Chinese trade in goods (Figure 12) has undergone a rapid transformation where high-technology manufactures have grown from being the least important category in 1992 (together with medium-low technology goods) to being the most important category in 2001 (together with low technology goods)[?]. Normalised to the 1992 base, high-technology trade grew by a factor of 6 over the 1992-2001 period compared low-technology, medium-low technology and medium-high technology goods that increased between two- and three-fold. The largest share of the 7 percentage points growth in trade in goods between 1999 and 2002 can be attributed to trade in high-technology manufactures. By 2001, high-technology goods accounted for 24.2% of Chinese exports in goods, up from 10.9% in 1992, and considerably closer to the OECD average of one-quarter.

42. Comparing the annual average growth rates[?] of high-technology manufacturing relative to the growth rates of total manufacturing, Figure 13 reiterates that China has gone through a period of significant structural change. The figure demonstrates the high growth rate of Chinese high-technology exports over the period 1992-2001 (21.7% annually) relative to the other major OECD economies.

Patenting

43. Another indicator of innovative output is patenting activity. The level of patenting activity at the State Intellectual Property Office of the People’s Republic of China (SIPO) increased rapidly during the 1990s, although the absolute level is still very low and much of the increase can be attributed to applications by foreigners (see Figure 14). Between 1991 and 2000, foreign patents increased by 26% a year, whereas domestic patent applications increased by 15% a year. In 2000, 60% of the patent applications to the SIPO were made by foreign inventors, with Japan accounting for 20.6% of total patent applications, followed by the EU (16.8%) and the United States (14.9%). This activity by foreigners is indicative of the presence of foreign R&D centres in China, the strengthening of China’s intellectual property system and the increased integration of China into the global innovation system.

44. A similar trend can be seen from US Patent and Trademark Office (USPTO) patent data where patents by Chinese inventors have quadrupled over the 1990s, but increasingly the invention is not owned by a Chinese firm (Figure 15). Over the 1990s the dominance of the US has waned where in 1992 US firms owned 50% more patents granted to Chinese inventors by the USPTO than all other foreign firms combined. By 2000, Chinese Taipei firms ownership of USPTO patents granted to Chinese inventors surpassed those owned by US firms, and in total non-US foreign firms owned about 50% more USPTO patents granted to Chinese inventors than US firms. Again, this is indicative of the increased integration of the Chinese into the world S&T system.

India

45. With China, India represents the other major source of supply of the internationally mobile highly-skilled. Like China, the supply of talent from India, especially for IT and health professionals, is in demand from a growing number of countries, including India itself. Coupled with this is the growing capacity of Indian institutions of higher-learning to educate Indians at home, the development of high-tech industries fuelled by foreign direct investment and the expansion of research opportunities in India that collectively reduce the “push” that used to send the highly-skilled abroad in search of rewarding careers. In fact, there is increasing evidence that Indians who went abroad are returning home. As the second large source country for the highly-skilled, these changes within India will have repercussions for the global market for the highly-skilled.

Students

46. Like China, India is increasing the enrolment of students in Indian higher-education institutions, albeit at a slower rate. Over the course of the 1990s, India increased its student enrolment by 47%, climbing from 5.2 million to 7.7 students (table 3). In absolute terms, the largest increase was in the humanities which added over a million students, but the natural sciences increased by over 400 thousand, representing about one-fifth of the total enrolment in 1999-00. While starting from a much smaller base, the rate of growth in professional tracks like engineering & technology and medical sciences was higher than the average at 51% respectively. At the doctorate-level, the role of the natural sciences is more prominent, accounting for over a third of the doctorate degrees in 1998-99 (Table 4). Thus while over 800 Indians earned science & engineering doctorate degrees in the US in 2001, the Indian system itself produced more than five-times that number (Khadria, 2004b).

Growing capacity of the Indian S&T System

Science and Technology (S&T) personnel

47. In the past, many of these highly-skilled graduates from Indian institutions would migrate abroad in search of work in science and technology careers (OECD, 2001). While this continues, a significant number remain in India, causing the stock of S&T personnel to increase by 60 percent over the 1990s (Table 5). Almost half of these people were graduates from science studies (such as mathematics, chemistry, biology and physics), while the largest growth rates were reported for engineers. By the end of the 1990s, the stock of S&T personnel, a basic element to the strengthening of the S&T capacity of India, had reached nearly 8 million. This figure includes a mix of various degrees across a range of fields, making exact comparisons to other countries difficult, although using a more restricted definition of “researchers”, India has approximately the same absolute number as Canada or Korea (95 000) albeit with a much lower per-capita density (OECD, 2003a).

The IT sector

48. A key factor behind the advancement of the Indian S&T system has been the IT sector, particularly the software and computer services sectors. The employment of IT professionals in India has increased almost tenfold over the past 10 years (Khadria, 2004b). This trend is likely to continue as information and communication technologies enables firms in OECD countries to “off shore” work that can be digitised, creating competitive pressures that force other firms to follow suit. An area of particular strength for India is software design and development which has attracted “offshored” work from a variety of software firms including IBM, Thompson, CAP Gemini Ernst & Young and Google. The growth of the Indian IT sector is also attributable to the IT down-turn in the US which forced many Indians on temporary visas to return home. These people leave the US with skills and know-how obtained from working in places like Silicon Valley as well as contacts to venture capitalists, US firms and the broader IT community, especially other fellow Indians who remain in the US. While this return flow to India is still relatively modest, as opportunities grow in India, it is increasing to the point where India’s NASSCOM (National Association of Software & Service Companies) estimates that the return flow of IT professionals now offsets the outflow (Table 6).

Return Flows

49. These return flows of the high-skilled is another indication of how the S&T system in India is maturing. A case study of 45 returnees to India, undertaken for the OECD, suggests that a range of factors are involved (Figure 16) with the “pull” of ‘family’ being the most frequently cited. Following this, over half of the respondents identified the ‘recognition of India as a major emerging IT power in the world’ and the consequent increase in ‘employment opportunities’ in India, particularly in the IT sector, as the key reason they chose to return. Slightly less than half, were attracted home by the relatively ‘higher real earnings’ in India, especially when they factored in the cost of living abroad as compared to India (Khadria, 2004a).

50. This small survey suggests that while the “pull” factors were the main motivating forces, several “push” factors were also key. Top amongst these was ‘the fear of ethnic/racial problems in the host country’ and a ‘negative attitude of the employer towards immigrant employees’ (Khadria, 2004a).

R&D Investment

51. Thanks to its large pool of talent and relative low cost, India has ramped up its R&D as multinational enterprises like SAP, Oracle, TI, Hewlett-Packard, Texas Instruments, Cadence, Analog devices, Cisco, GE, IBM, Intel, Motorola, DaimlerChrysler, Electrolux, Google and GE have set up labs (Rai, 2004). The GE lab employs 1600 researchers in an 80$m lab, its second largest in the world (Basu, 2004). In the year 2000-01, the government performed nearly three-quarters of the estimated 19.4 billion USD dollar (in current PPP) spent on R&D, placing India slightly ahead of Canada and behind Korea in terms of absolute R&D effort although comparisons of absolute efforts are plagued by the choice of a common currency. Aside from IT the Indian government has focused on biotechnology where private sources indicate that from a small base, the total investment (including R&D) has tripled between 1999 and 2002 with over half of this investment being directed toward health applications (Chaturvedi, forthcoming).

The improved performance of Indian Science & Technology

52. As the Indian S&T system grows, so do outputs such as patenting activity (Figure 17). While the Indian level of patenting activity as measured by the USPTO in 1999 is about two-thirds that of China, in fact the 4-fold increase between 1993 and 1999 is identical to that of China’s. Over half of this increase was for patents in the area of ICT. As in China, foreign firms own a majority of all Indian patents granted by the USPTO with US firms accounting for the bulk (85%) of the foreign ownership. These trends are indicative of the increased integration of the Indians into the world S&T system, the important role of multinational firms in this process and the existence of “transnational technical communities” that link ethnic Indians around the globe, and especially between India and the United States (Saxenian, 2002).

MNEs

53. MNEs are key players in innovation. In 1999, more than half of all business-performed R&D (BERD) in the United States was performed by firms with 10,000 or more employees, most of whom are multinationals (NSF, 2002). Ten large multinationals accounted for about one-quarter of all US business enterprise R&D (IRI, 2001).[?] This pattern is repeated in other countries like Sweden, where the R&D expenditures of Ericsson were equivalent to almost 60% of Sweden’s business enterprise R&D in 1999, although some of this R&D was performed elsewhere in Europe, Asia and North America (Ericsson 2001); in Finland, where Nokia was responsible for performing approximately one-third of Finnish BERD in 1999, and in Canada, where the R&D expenditures of Nortel Networks were equivalent to more than one-third of Canadian BERD in 2001, although the company’s R&D was conducted in more than 10 countries, including Australia, China, France, the UK and the US, in addition to Canada (Sheehan and Wyckoff, 2003).

54. Internationally comparable data on the “outward” (abroad) investment of multinationals is scarce and the US has one of the better data series. A recent report by the NSF using this data underscores the importance of MNEs to the overall innovation effort as well as their global reach and flexibility (Moris, 2004a). The R&D workforce of US owned affiliates abroad is equivalent to about 12% of the US domestic R&D workforce, but US MNEs have been expanding R&D employment faster abroad at a 3.9% annual average between 1994 and 1999 vs. 0.7% domestically. The location of this activity is mainly in Europe, with the UK being the location of over 22.4% of all R&D workers for US affiliates abroad in 1999. Of the increase between 1994 and 1999 of 21,500 R&D workers, the UK was the location of over a third (8,600 jobs) but “non-Japan Asia-Pacific” was also a large gainer at 6,300 positions – a near doubling from 1994 to 1999 (ibid.).

55. Many of these investments are made so as to undertake research for the local markets and are part of broader investment packages negotiated with the host country. But a factor of growing importance is the desire to tap into local skills. In short, if these multinational firms can not gain access to the highly-skilled personnel they need at home, they will go abroad to gain access through the establishment of foreign affiliate R&D centres. This reduces both the pull of the highly skilled towards the country that is the home to the parent of the MNE as well as the push to leave as opportunities arise domestically.

Policy Challenges

56. The market for the highly-skilled has transformed from one where demand originated largely from a single buyer, the US, in the 1990s to one where demand is now more differentiated across buyers, including the EU, Japan, Canada, Australia as well as the large supply countries themselves – China and India. This shift is just beginning, and will probably move in fits and starts, but several indicators suggest that it will continue and strengthen, leading to the formation of a truly global market for the highly-skilled (Harris, 2004). This evolution of the market could have profound implications for individual national innovation systems, macroeconomic policy, the generation and flows of knowledge and correspondingly the shape and operation of the network through which knowledge is shared. Given that the main focus of this paper has been to describe the major elements of this shifting market, the implications for policy are only briefly outlined and should be considered an initial effort to map out some of the issues that OECD policy makers will need to address.

National Innovation Systems

57. In the short-term where the next generation of researchers is already enrolled in graduate school, there is no choice but to compete in this market for the globally skilled. Thus, OECD national innovation systems need to quickly adapt to these new market dynamics. These changes create a window of opportunity for nimble countries to enter and seize part of the market of the highly-skilled which has been dominated by the US. While this may appear to be mainly a threat to the US, it also creates a challenge for Continental Europe and Japan who still lack sufficient flexibility in their higher-education and S&T systems and a social environment that is geared towards accommodating the highly skilled from abroad. In this sense, immigration based countries like Australia and Canada as well as the UK may be best positioned to take advantage of these changes in the global market. This will require investments on their part to ensure that there research capabilities, at least in a few select fields, are world class.

58. As countries address some of the issues that have pushed their highly-skilled abroad, increasingly pull factors will play a larger role in the dynamics of the international flows of the highly-skilled (Khadria, 2001). As shown above, a key pull factor for attracting the highly-skilled from abroad is world-class universities. This necessitates a change in mind-set for many countries that tend to view their universities as being a purely national resource and not part of an increasingly competitive, international sector and not part of an increasingly global science and technology network (OECD, 2004d).

59. Some countries have already seized on these opportunities. As the number of first-time foreign students drops in the US, the United Kingdom has reported a 21% rise in number of students from non-EU countries over the 2001/02 and 2002/03 year (from 152,625 students to 184,685). Australia also experienced a significant rise in international student enrolment in higher education, from 86,269 in 2001 to 136,252 in 2003. (OECD, 2004b and OSS, 2003).

60. Attracting foreign students includes a wide-range of policies including accommodating immigration laws[?], establishing a supportive social structure for the foreign students and providing financial aid. But most fundamentally, it is the quality of the education and research that pulls in the top-students, especially in science and engineering fields. This suggests the need for greater support to universities as part of the overall national system of innovation.

61. In the longer-term, another response to this increasingly global market is to increase the indigenous supply. This requires a focus on the entire supply pipeline, from primary and secondary schooling to university education and PhD training. Over the past few years, OECD countries have implemented a range of initiatives to stimulate the domestic supply of graduates and improve the attractiveness of research careers. Some of the key areas include: raise interest in and awareness of science, especially among youth aged 7 to 12; improve teacher training; revise curricula to make programmes more responsive to student needs and demands from industry; recruit women and other under-represented populations; increase funding for PhD students, post-docs and the creation of more autonomous research positions (OECD, 2004b; Hill et al, 2004; Zumeta and Raveling, 2002).

62. The three sectors that have generated much of the demand for the highly-skilled in the OECD member countries – ICT, aerospace and biotech – are adjusting to a much slower pace of growth than what existed in the 1990s and many of the growing markets for the output of these sectors lie abroad. This will lead to the further integration of national systems of innovation into a global system as products are tailored for foreign markets, foreign affiliates are set up to service these markets and researchers are encouraged to become more internationally mobile and more global in their outlook (NRC, 2004). As these trends develop, the notion of a national system of innovations may become less and less relevant. In fact, what may be best for national outcomes may be an openness and receptivity to ideas and innovations abroad and active participation in the global network.

Macroeconomic Effects

63. If global demand for the highly-skilled increases and supply stays roughly constant as the baby-boom researchers retire, offsetting possible additions from both indigenous sources (women, minorities) and non-OECD countries, the price for the highly-skilled should begin to equalise globally and will then increase over the longer-term. The relative low cost the US enjoyed in the 1990s when there was little global competition for this cadre of talent is over. It will cost more to attract and retain these people, both in the US and across the globe. These “costs” are broader than merely wages but include advancement opportunities, research funding, and in general the quality of work. Thus the salutatory effect the in-flow of the highly skilled had in sustaining the US IT boom of the 1990s will be more difficult to obtain in the future. This said, the development of a truly global market for this segment of the labour market could be beneficial to the economic performance of smaller countries (e.g. Australia, Canada, Finland) that on their own could not transform this segment of the labour force into a global market.

64. As the cost of labour increases, those involved in the business of research will try to minimise these costs through the substitution of capital. This will further fuel the trend of more intensive use of information and communication technologies to increase the productivity of innovative activities and force an upgrading to research facilities, both public and private, that could put pressure on budgets and government spending.

65. The greater integration of China and India, countries that suffer from significant pockets of poverty, into the global science and technology community, will have beneficial economic effects on their domestic economic development as well as creating huge new markets for international trade which should stimulate global economic growth. In addition, the broadening of innovative activities across the globe will lead to an overall increase in the rate of innovation, further stimulating growth and productivity.

66. A more diverse circulation of the highly-skilled across borders will help to diffuse and push best practices, forcing policy in number of areas to be more accommodative. This is already evident in India where Indians returning home after having been exposed to Silicon Valley have been instrumental in influencing Indian government policy in areas like venture capital, telecom communications deregulation, and preferential tax treatment (Saxenian, 2002). These pressures should be useful for breaking down sheltered enclaves, injecting new ideas and fostering more policy experiments for improving the innovative climate.

67. As the S&T system becomes more global, this will further link the economies globally, necessitating even more global coordination of economic policies. A necessary first step towards this improved coordination is the development of better data series that track the evolution, breadth and depth of the interdependencies. This is a huge task covering a wide range of data series, but two priority areas are the need to improve the global understanding of the activity of multinational enterprises and the measures of the highly-skilled, especially their international flows.[?]

A Global Knowledge Network

68. The expanding global market for the highly-skilled and the establishment of increasingly important scientific and technical expertise in places like China and India will necessitate a reconfiguration of the knowledge network, extending its geographic spread and shifting its locus away from the US, and OECD countries in general, to a broader set of partners. Technically, this will require an integration of these new actors into the global network but more fundamentally it will require a social inclusion of these new partners which could represent a challenge given their different cultural and economic position. This challenge could be compounded by the fact that these new players want to exploit their capabilities to develop fully into “knowledge-based economies” and may not be too eager to share their new knowledge with the broader global community.

69. As the number of global loci for innovation increases and their sophistication develops, the physical movement of the highly-skilled could be increasingly replaced with the global movement of ideas and knowledge through a cyberinfrastructure, while the people increasingly remain in the same place.[?] For example, an MNE faced with a growing market in China and an increasing supply of highly educated researchers in China might respond by establishing an R&D center in China, rather than bringing the highly-skilled Chinese, on a permanent basis, to its more expensive US or EU R&D establishment. As the difference in cost of doing research in OECD countries versus China or India declines over the medium-term, MNEs are likely to take steps to encourage the flow of knowledge via temporary postings of their staff (moving in both directions) and other short term methods, or create project based teams that draw on people from all over the world, but again on a temporary basis. In this scenario, the globalization of innovation will lead to a short-term increase in the circulation of the highly skilled, followed by a long-term decline, as the highly-skilled in the key source countries in Asian are increasingly less attracted to moving to the US or the EU on a long-term basis. This observation is supported by the current behavior seen in the US or Japan where a very low percentage of the highly-skilled live abroad or have plans to do so, suggesting that scientists would rather stay at home if suitable opportunities exist (Burrelli, 2004).

70. If the future lies in a decline in the physical circulation of the highly-skilled and an increase in the circulation of knowledge, it has several implications for policy. First, this possibility increases the importance of developing a supply of highly-skilled human capital from the indigenous population, and thus the need to fuel an interest in science among current elementary and secondary students in the OECD countries. Second, immigration systems will need to adapt to the needs of short-term (under two years) transfers of the highly skilled. Third, OECD countries will need to tap into methods that ensure the effective transfer of ideas and knowledge, and create forums for their circulation. Close linkages built through mechanisms such as shared research programs and scholar exchanges between universities in China and India and in the OECD might be increasingly important. These new locations of innovative activity should be integrated into the global science community through the extension of the cyberinfrastructure that links scientists and engineers which is predominantly configured around an OECD research community. As David (forthcoming) points out, technically this extension is relatively easy compared to the social and cultural challenges. This integration could be eased through tapping into the “transnational technical communities” that increasingly link the countries of the world. To achieve this will require a better understanding of the social structure and interaction of these various communities.

71. As the key player funding and performing R&D, the home to many of the world’s premier universities, the headquarters for many of the world’s innovation-intensive MNEs, the architect to the information network that links the global research community and as a country that has been at one time or another home to much of the world’s diaspora, the US has a pivotal role to play in this transition and the formation of this more global knowledge network.

72. As the science and technology community becomes more global it transcends the rules and policies of the individual nation states and will require 3rd parties to facilitate and adjudicate. Rather than creating something new, better use and a strengthening of the existing international components housed in institutions like the OECD, UNESCO (UN Education, Science and Cultural Organisation), and WIPO (World Intellectual Property Organisation) is needed.

Conclusion

73. Changes since 2000 have altered the market for the highly-skilled, necessitating a re-evaluation of polices to accommodate these changes. These changes are perhaps most pertinent for the US. It would be an exaggeration as it was 22 years ago to say that the US is at risk because of these changes in the global market. The US S&T system enjoys many advantages and has shown an ability to adapt to changing circumstances that suggest that it will react to these new challenges. Nevertheless, these changes do require attention and a reaction by policy makers, something that can be difficult to achieve when there are many immediate policy issues that are competing for the same attention and resources.

74. The changes in the global market for the highly-skilled have implications for the global science and engineering community and any country that is trying to bolster its innovative capacity by building its S&T workforce. These changes are important, and have a momentum that will carry them forward for some time. For this reason, and the fact that this trend towards a more global system has many very positive attributes, national policy makers should not try to fight this development. Rather, they should embrace it and react to it by modifying their domestic policies to be more accommodative (e.g. immigration policies, education systems) and alter their foreign policies to reflect a S&T system that is more global and less concentrated in a few leading countries.

Box A: European Policy Initiatives to Attract Highly-Skilled Foreigners

|Belgium |Establishment of awards to promote the return migration of expatriated researchers (14 awards over two years for a |

| |total of EUR 1.24 million). Establishment of an international network to promote mobility and communication among |

| |researchers1. |

|Denmark |Foreign experts receive a tax reduction for first three years of residence (if they remain 7 or more years this must be |

| |paid back). 2 |

|France |Post-doctoral programme has attracted 900 foreign researchers to top research labs, with aims to recruit 110 additional |

| |foreign researchers through a competitive call for proposals by the hosting research teams.1 |

| |Launched a regional development plan, “Attractiveness of Regions” (Attractivité du territoire) that will provide funding|

| |to help institutions recruit high-quality foreign researchers to France as well as to facilitate the return migration of|

| |French post-doctorates (Commissariat général du Plan, 2004).1 |

| |IT specialists who earn more than 27,500€ annually are allowed to convert their provisional residence permit to work |

| |permit without returning to their home country first.3 |

|Germany |Implemented academic exchange programmes and special post-graduate programmes to facilitate the enrolment of highly |

| |qualified applicants from abroad. Set goal to increase the share of foreign students from 8.5% to 10% as well as the |

| |share of German students having studied abroad from 14% to 20% by 2010.1 |

|Hungary |Establishment of Szent-Györgyi fellowships for internationally acknowledged Hungarian or foreign researchers living |

| |outside Hungary to work in Hungarian institutions of higher education.1 |

| |Opened various post-doc fellowships to researchers from abroad.1 |

|Ireland |“Introduction of one of the most liberal work permit regimes in the Western world.” 2 |

|The Netherlands |Simplified procedures for immigrating science and technology workers and lowered fees for entering the country.1 |

| |Highly-skilled foreigners benefit from a 30% discount on income tax for 10 years.2 |

|Spain |The Ramon y Cajal programme hires domestic and foreign researchers on five-year contracts (estimated cost for the |

| |five-year duration of the programme is EUR 320 million). Of the 2 000 contracts to date, 17% have been for foreigners |

| |and 21% for Spanish researchers working abroad. 1 |

|Sweden |Tax discount of no taxes on the first 25% of income for foreigners who work in highly-skilled occupations. 2 |

|The United Kingdom |The Highly Skilled Migrant Programme (2002), allows highly skilled individuals to enter the country to seek and enter |

| |work without the need for a prior offer of employment (work permits issued to managers, scientific and technical |

| |professionals rose from 5,000 in 1996 to 19,000 in 2000) 2 ; introduced a new category of eligibility for younger |

| |workers and extended the duration of work permits from 4 years to 5 years.1 |

| |In 2003, launched a GBP 10 million Postgraduate Awards programme that will allow over 100 PhD students from India, |

| |China, Hong Kong (China), Russia and the developing world to study in the United Kingdom.1 |

| |Proposal to allow foreign students in science, technology, engineering and mathematics to work in the United Kingdom for|

| |12 months1. |

1 OECD, 2004b; 2 Mahoum, 2002a; 3 METI, 2003.

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Tables

1. PISA scores, 2003

|PISA 2003 mean scores in mathematics - All countries | |PISA 2003 mean scores in science - All countries |

| | | | | |

|  |Mean score |S.E. |All | |  |

| | | |countries | | |

|Engineering degree holders |547 |705 |798 |846 |970 |

|Engineering diploma holders |874 |1 138 |1 256 |1 313 |1 456 |

|Medical graduates (including dental surgeons) |310 |358 |380 |392 |403 |

|Agricultural graduates |168 |202 |217 |224 |231 |

|Veterinary graduates |34 |40 |43 |44 |45 |

|Science graduates |2 430 |3 155 |3 479 |3 655 |3 838 |

|Science post-graduates |482 |626 |696 |731 |767 |

|Total |4 846 |6 225 |6 868 |7 204 |7 710 |

Note: Data for 1999 and 2000 are projections.

Source: Khadria (2004b), IAMR, New Delhi, cited in: Research and Development Statistics 2000-2001, p.88 (DST 2002).

6. Net migration, cumulative stock and annual flow estimates of IT labour (software) supply in India (thousands)

|  |2000-01 |2001-02 |2002-03 |2003-04 |2004-05 |

|Existing stock (excluding ITES professionals) | |360 |429 |542 |675 |

|India: New IT labour | |133 |158 |173 |192 |

|-/- No. of IT professionals leaving India (onsite work) | |64 |64 |64 |21 |

|No. of IT professionals returning to India | |- |20 |24 |29 |

|No. of IT professionals |360 |429 |542 |675 |875 |

Note: The above supply summary excludes ITES (IT enabled services) professionals.

Source: Khadria (2004a), NASSCOM (2002).

figures

1. Foreign PhD students in OECD countries, 2001

|As a percentage of total enrolment |Number by host country |

|[pic] |[pic] |

Source: OECD, Education database, November 2003.

2. Number of S&E doctorates awarded to foreign citizens in the United States

|By citizenship or origin, 2001 |By type of visa, 1985-2001 |

|[pic] |[pic] |

Source: OECD, based on data from US National Science Foundation, 2003.

3. Number of foreign scholars in the US by country of origin, 2002

|[pic] |

Source: NSF, 2004.

4. Stock of Highly-Skilled Immigrants in OECD Countries

Source: Dumont & Lemaître, 2004

5. Annual Percentage Change of International Student Enrolment in US Higher-education Institutions

[pic]

Source: IIE (2004).

6. Additional researchers needed to meet proposed EU targets for R&D intensity in 2010, as a function of GDP growth rate

|a. EU levels of R&D funding per researcher |b. US levels of R&D funding per researcher |

|[pic] |[pic] |

Notes: Based on current 15 EU Members; uses 2000 ratio of R&D funding to researchers in the EU and 1999 ratios for the US; uses 1999 data to estimate the shares of industry-financed and government-financed R&D used in the business and private; researchers are based on full-time equivalents; assumes 1.5% annual increase in researcher labour productivity.

Source: OECD, based on data from the Main Science and Technology Indicators, January 2003.

7. Number of Chinese students enrolled in tertiary education in the United States, Japan and the EU, thousands

Source: OECD, education database, February 2005.

8. Doctoral Degrees Awarded in China

[pic]

Source: Song and Xuan, 2004

9. Number of researchers, thousands of FTE

[pic]

Note: There is a break in series for China between 1999 and 2000, due to improved measurement; for more details, see Schaaper (2004).

Source: OECD, MSTI database.

10. Growth of R&D expenditure, annual average growth rate 1991-2001

(based on national currencies in constant prices)

Note: There is a break in series for China between 1999 and 2000, due to improved measurement; for more details, see Schaaper (2004).

Source: OECD, MSTI database.

11. Outward and return migration of Chinese students, 1991-2001

Source: OECD, 2004b based on Gao Changlin, data from MOST (2002), China Science and Technology Indicators 2002

12. Evolution of Chinese trade by technological intensity, billions of USD in current prices1

Note: (1) Average of imports and exports.

Source: OECD, ITCS database.

13. Growth of high-technology exports, annual average growth rate 1992-2001 (based on data in constant 1995 USD)

Note: EU data exclude intra-EU trade; data deflated from current into constant USD with the US implicit GDP deflator.

Source: OECD, STAN and ITCS databases.

14. Trend in patent applications to the SIPO

Note: Data are by priority year and are provisional.

Source: OECD, Patent Database, September 2004.

15. USPTO patents by Chinese inventors, by priority date

[pic]

Source: OECD, Patent Database, July 2003.

16. Motivating factors in return migration to India

Source: Khadria, 2004a

Note: The responses were recorded on a five-point scale, from 1 for “extremely important” to 5 “not important at all”. Responses of 1, 2 or 3 were added up (unweighted) to indicate that a factor was important, while responses 4 and 5 suggested that a factor was not important.

17. USPTO patents by Indian inventors, by priority date

[pic]

Source: OECD, Patent Database, July 2003.

Notes

[1] Organisation for Economic Cooperation and Development, Directorate for Science, Technology and Industry, Economic Analysis and Statistics Division. This work has benefited from comments from OECD colleagues and a US National Science Foundation grant supporting work at the OECD on human resources for science and technology. The opinions expressed in this paper are not those of the OECD Council, any of its Member countries or the National Science Foundation.

[i] “Highly-qualified” is defined in terms of achieving an educational attainment equal to “the first stage of tertiary education (not leading directly to the award of an advanced research qualification)” (ISCED 5) or “the second stage of tertiary education (leading directly to the award of an advanced research qualification)” (ISECD 6). See: .

[ii] Saint-Paul (2004) estimates, very tentatively, that between 40% and 80% of European “star” PhDs were in the United States in 2000. Furthermore, combining data provided by Dumont and Lemaître (2004) allow for a preliminary estimate of the number of highly skilled living abroad. For European countries, these percentages are much higher (e.g. UK 14%, Germany 7.5%, France 4.6%) than for the US ( ................
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