The following OECD assessment and recommendations summarise Chapter 3 of the Economic Survey of Chile 2005 published on 4 November 2005.
Boosting innovation is high on the government’s policy agenda
The authorities place innovation policy among their policy priorities on their agenda for growth. Chile’s main strengths in fostering innovation are: its relatively investor-friendly legislation on FDI; the presence of reasonably competitive pressures arising from product market regulations, discussed in the 2003 Survey; a liberal trade regime, which facilitates the diffusion of foreign technology embedded in imported capital goods and inputs; and robust macroeconomic performance, with stable inflation and low interest rates, which fulfils a strong framework condition for innovation. But, at 0.7% of GDP in 2002, Chile’s R&D intensity is low by international standards. Also, innovation activity is financed and carried out predominantly by the government. Options for private-sector financing of innovation, such as risk and venture capital, are limited. Human capital is low. To tackle these problems, it will be important to select among different, often competing, alternatives those which are most cost-effective and with the greatest potential for fostering the diffusion of innovation.
Chile’s R&D intensity is relatively low
1. The dots correspond to the levels in 1995.
Sources: CONICYT, RICYT, and OECD, Main Science and Technology
Innovation policies will need to be more cost-effective and in line with Chile’s comparative advantages
To foster innovation, the authorities are focusing on the creation of new sources of finance and on reforming the architecture of Chile’s innovation system. These are laudable policy objectives. In particular:
Central to the government’s policy agenda is an increase in the availability of public funds for innovation with the use of revenue from the new mining tax, introduced in May 2005. But this will not in itself result in an appreciable improvement in innovation performance. While there is no “best practice” approach to balancing the policy mix, the experience of OECD countries suggests that an increase in direct government support for innovation can easily run into governance problems, with the risk of capture of government funds by interest groups. The monitoring of individual programmes will need to be stepped up pari passu with the increase in financing to ensure that government support is cost-effective and funds are allocated in a contestable, transparent manner.
Innovation policy, regardless of the support instruments used, should be consistent with Chile’s comparative advantages. Greater R&D intensity could contribute to improving the value-added content of exports, but scarce public funds should not be used to “pick winners”. Innovation would have a high pay-off in most sectors if it focused on the diffusion of state-of-the-art technologies adapted to business needs and geared towards fostering network externalities. This would favour support for general-purpose technologies with the broadest sectoral application possible, in particular information and communication technologies. Greater emphasis on support for applied research would be consistent with this objective.
The authorities are aware of the need to reduce institutional fragmentation. The overhaul of the institutional architecture of Chile’s innovation system, coupled with the creation of the National Innovation Council linked to the Presidency to advise the government on innovation policy, will bear fruit to the extent that it contributes to greater policy coherence and fosters synergies among different stakeholders and funding agencies. But governance challenges should not be underestimated. The creation of an additional institution in an already complex set-up without the appropriate rationalisation of the existing instances for policymaking and service delivery may do little to address the problem of fragmentation and overlapping of functions and responsibilities.
Return to the Economic Survey of Chile 2005
A printer-friendly Policy Brief (pdf format) can also be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.
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For further information please contact Chile Desk at the OECD Economics Department at firstname.lastname@example.org. The OECD Secretariat's report was prepared by Luiz de Mello and Nanno Mulder under the supervision of Silvana Malle.