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Economic Growth and Gross DomesticExpenditure on R&D in G-7 and BRICS

Countries: Long-run ComparativeSynergy Analyses

Jari Kaivo-oja1, Jyrki Luukkanen1 & Teemu Haukioja2

1Finland Futures Research Centre, Turku School of Economics, Universityof Turku & 2Pori Unit, Turku School of Economics, University of Turku

Session V, China and Countries Outside Europe, Tuesday 13 June 2017

Background of the study

• The study is based on statistical synergy methodology

• Data from the Wordbank

• G7 countries: USA, Canada Germany, France, UK, Japan and Italy

• BRICS countries: Brazil, Russian Federation, India, China and South Africa

• Focus is on the synergy of GDP-GERD interaction in G7 –and BRICS-economies

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Methodological background: Synergy analysis

Maximum synergy can be obtained when relative changes Δx and Δy are equal. In case the change in y i.e. Δy is larger than changes in x i.e. Δx, the quotient must be inverted to estimate potential synergy ratio. Therefore, potential synergy/trade-off between two variables can be measured between -1 to +1. Negative sign indicates trade-off between two variables. In this study we calculateconventional index number of synergy and long-run synergy index.

Synergy analysis background

• Conventional synergy: Economic cycles are not smoothened

• Long-run stabilized synergy: Calculation based on Moving Average of variables to compensate the impacts of economic cycles and smoothen the results in order to reveal the trends

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Some benefits of synergy methodology

• It allows us to present explorative analysis of the relationships between keyvariables (in this case GDP and GERD)

• It allow critical analysis on long-run dynamics of economies

• The synergy methodology provides essential information for economic and social policy-makers

• It is new tool for sustainablity analysis

• The evaluation of synergy/trade-off proposed on this paper indicates only possible (potential) causality but, does not infer a causal relationship between the variables

• Typically decision-makers expect that there is positive synergy between GERD and GDP, but finally it is empirical question to evaluate

Focus on two powerful economic groups: G7 – and BRICS -group

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GERD, % of GDP in the G7-countries and in BRICS-countries, years1996-2015, Source: World Bank 2017

0

0,5

1

1,5

2

2,5

3

3,5

4

0 5 10 15 20 25

GERD, % of GDP in the G7-countries and in BRICS-countries, 1996-2015

Canada France Germany Italy Japan United Kingdom United States of America Russian Federation China Brazil India South Africa

GDP (current prices PPP) in the G7-countries, 1996-2015, source: World Bank

0

2E+12

4E+12

6E+12

8E+12

1E+13

1,2E+13

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

GDP (current prices PPP) in the G7-countries, 1996-2015

GDP, current prices, PPP Russian Federation China Brazil India South Africa

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GDP (current prices PPP) in the G7-countries, 1996-2015, Source: World Bank

0

2E+12

4E+12

6E+12

8E+12

1E+13

1,2E+13

1,4E+13

1,6E+13

1,8E+13

2E+13

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

GDP (current prices PPP) in the G7-countries, 1996-2015

Canada France Germany Italy Japan United Kingdom (Northern Ireland) United States of America

GERD (current prices, PPP) in the G7-countries, 1996-2015, source: World Bank 2017

0

1E+13

2E+13

3E+13

4E+13

5E+13

6E+13

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

GERD (current prices, PPP) in the G7-countries, 1996-2015

Canada France Germany Italy Japan United Kingdom (Northern Ireland) United States of America

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GERD (current prices, PPP) in the BRICS-countries, 1996-2015, Source: World Bank 2017

0

5E+12

1E+13

1,5E+13

2E+13

2,5E+13

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

GERD (current prices, PPP) in the BRICS-countries, 1996-2015

Russian Federation China Brazil India South Africa

Average conventional synergy of G7-countries and BRICS -countries, years 1997-2015

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

1

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Average conventional synergy of G7-countries and BRICS -countries, years 1997-2015

Average conventional synergy, G7-countries Average concentional synergy, BRICS -countries

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Average long-run synergy of G7-countries and BRICS -countries, years 2017-2015

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Average long-run synergy of G7-countries and BRICS -countries, years 2017-2015

Average long-run synergy, G7-countries Average long-run synergy, BRICS -countries

Long-run synergy levels in the G7-countries, years1997-2015

-1

-0,5

0

0,5

1

1,5

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

LR S

yner

gy In

dex

Long-run synergy levels in the G7-countries, years 1997-2015

LR-Synergy-GERD-GDP-Canada

LR-Synergy-GERD-GDP-France

LR-Synergy-GERD-GDP-Germany

LR-Synergy-GERD-GDP-Italy

LR-Synergy-GERD-GDP-Japan

LR-Synergy-GERD-GDP-UK

LR-Synergy-GERD-GDP-USA

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Long-run synergy levels in the BRICS-countries, years 1997-2015

-1

-0,5

0

0,5

1

1,5

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

LR S

yner

gy In

dex

Long-run synergy levels in the BRICS-countries, years 1997-2015

LR-Synergy-GERD-GDP-Russian Fedearion

LR-Synergy-GERD-GDP-China

LR-Synergy-GERD-GDP-Brazil

LR-Synergy-GERD-GDP-India

LR-Synergy-GERD-GDP-South Africa

Average GDP-GERD synergy levels in G7- and BRICS-countries, year 1996-2015

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

Average Synergy,Brazil

Average Synergy,Russian

Federation

Average Synergy,France

Average Synergy,China

Average Synergy,Germany

Average Synergy,Italy

Average Synergy,India

Average Synergy,Japan

Average Synergy,Canada

Average Synergy,South Africa

Average Synergy,USA

Average Synergy,UK

Average GDP-GERD synergy levels in G7- and BRICS-countries, year 1996-2015

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Average long-run GDP-GERD -synergy levels in G7-and BRICS-countries, years 1996-2015

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

1

Average LR-synergy, Brazil

Average LR-synergy, UK

Average LR-synergy, France

Average LR-synergy, USA

Average LR-synergy, Russian

Federation

Average LR-synergy, India

Average LR-synergy, Canada

Average LR-synergy, South

Africa

Average LR-synergy,Germany

Average LR-synergy, Italy

Average LR-synergy, China

Average LR-synergy, Japan

Average long-run GDP-GERD -synergy levels in G7- and BRICS-countries, year 1996-2015

Long-run synergy levels in the USA, Russian Federation, China and India , years 1997-2015

-1

-0,5

0

0,5

1

1,5

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Lon

g-ru

n s

yner

gy in

dex

Long-run synergy levels in the USA, Russian Federation, China and India , years 1997-2015

LR-Synergy-GERD-GDP-USA

LR-Synergy-GERD-GDP-Russian Fedearion

LR-Synergy-GERD-GDP-China

LR-Synergy-GERD-GDP-India

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European perspective: Long-run synergy levels in France, Germany and the United Kingdom, years1997-2015

-1

-0,5

0

0,5

1

1,5

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Lon

g-ru

n s

yner

gy in

dex

Long-run synergy levels in France, Germany and the United Kingdom, years 1997-2015

LR-Synergy-GERD-GDP-France

LR-Synergy-GERD-GDP-Germany

LR-Synergy-GERD-GDP-Italy

Average convenional and long-run synergy trendsof G7- and G7 countries in the years of financialcrisis in the world economy, years 2007-2015

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

1

2007 2008 2009 2010 2011 2012 2013 2014 2015

Average convenional and long-run synergy trends of G7- and G7 countries in the years of financial crisis in theworld economy, years 2007-2015

Average conventional synergy, G7-countries Average concentional synergy, BRICS -countries Average long-run synergy, G7-countries Average long-run synergy, BRICS -countries

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Conclusions• Synergy analysis provides interesting perspectice to global innovation

ecosystems. For example we were able to report average GERD-GDP –synergylevels, which inform global decision-makers about success in synergy levels butalso failures in synergy levels

• Typically decision-makers expect that there is positive synergy between GERD and GDP, but finally it is empirical question to evaluate. Our study indicates that in some economies there are periods when there is also negative synergy. Synergy levels vary in time.

• Synergy dynamics is different in G7-countries compared to BRICS-countries: Key finding is that after 2002 BRICS-countries have improved their average synergylevel compared to G7-countries, and they have now more stable averagesynergy level compared to G7-countries average level

• Almost all countries have improved synergy levels between GDP and GERD in the long run which indicates harder compeition in the field of global innovationecosystems.

• China has biggest problems among BRICS-countries with its synergy level, surprisingly Brazil is having very hight positive synergy level amonf BRICS-countries

Conclusions

• Japan has the biggest problems among G7-countries with its synergy level, UK, France and USA have highest long-run synergy levels among G7-countries

• Among global players, LR synergy levels of USA, India and Russia do not differmuch after 2002 (LR-SI is about +0.75), but synergy level of China remains on lower level (LR-SI is about +0.3) in the period of 2002-2015

• In 2002 Russia had very negative synergy level (LR-SI was -0.86), but Russian Federation improved its performance after this exceptional year. Development to negative direction in long-run synergy started in 1999 although industrialproduction increased 10% in Russian Federation in years 2000-2002. This specialobservation requires more attention in the field of global innovation ecosystemresearch

• Among European G7-group members, France had the best positive LR-synergylevel performance in 1997-2015, Italy showed two negative LR synergy breaks in 1998 (LR-SI -0.86) and 2002 (LR-SI -0.30), but it has showed better peroformanceafter this year (Average LR-SI +0.60 in 2003-2015)

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Thank you for attention!

Dr Jyrki Luukkanen, FFRC,TSE, University of Turku

Dr Jari Kaivo-oja, FFRC,TSE, University of Turku

Dr Teemu Haukioja, Pori Unit, TSE, University of Turku