20 April 1997 • Austria's "Technology Gap" in Foreign Trade • Gernot Hutschenreiter, Michael Peneder

In a long-term perspective, world trade expands much faster for high-technology manufactures than for goods with low-technological content. Compared with other advanced industrialized countries, Austria exhibits a substantial "technological gap" in its foreign trade:

• The share of high-technology goods in total merchandise exports is more than twice as high for the average of both the OECD area and the EU countries than for Austria.

• Unit values for Austrian manufactures of high human-capital content (high-technology as well as standard-technology items) are markedly lower than those of other small open economies like Switzerland, Sweden or Finland.

• Deficiencies in quality and a low degree of specialization in advanced technology goods have led to a structural deficit in foreign trade in the high-technology bracket, which is estimated at nearly ATS 22 billion for 1994.

Nevertheless, a structural shift away from this unfavorable position towards a larger share of human-capital intensive manufactures may be observed for both high technology and standard-technology goods. It leads, in the longer term, to greater specialization in foreign trade as well as to gains in international market shares. Hence, Austria's share in OECD exports of human-capital intensive goods has steadily increased from a modest 0.96 percent in 1970 to 1.22 percent in 1980, 1.62 percent in 1990 and 1.55 percent in 1994. This rise extends to both high-technology and standard-technology items with 1994 market shares of 0.89 percent and 1.65 percent, respectively. By way of comparison, the international market share for all manufactures was 1.89 percent. Thus, Austria, while catching up, still has a long way to go in order to advance to an international top position.

In order to carry forward the process of structural adjustment, the ratio of expenditure on research to GDP will have to rise over the medium term, from currently 1.5 percent to the present EU average of around 2 percent. In absolute figures this would imply that over the next six years an additional total of ATS 40 billion be spent on research and development in the whole economy, which would boost the annual growth rate of such expenditure to 9.4 percent.

The "technology billions", provided for by the federal government for the next two or three years, represent a step towards closing the technology gap. However, additional resources will be required beyond this period, if Austria is actually to close the research gap vis-à-vis other industrialized countries.

However, the Austrian "technology gap" will not be closed by simply spending more public money on research. Not only are there severe budgetary constraints, but also the fact that in an international comparison the government share in total R&D spending is already high. Public funds should therefore be allocated such that they have the highest possible multiplier effects in encouraging R&D in the private sector, thereby setting in motion a self-sustaining process. Prerequisites in this respect are innovations and re-allocations in subsidy schemes, the implementation of evaluation procedures, improved cooperation between the corporate sector and research institutions as well as new forms of regulation conducive to innovation, notably in markets to be liberalized such as telecommunication and energy supply.