Small Countries Stablize by Exporting High-Tech

Smaller countries lead the way.

When you think of 'high-tech', which countries come to mind?

What is 'High-Tech'?

Before continuing, what is meant by the term 'high-tech'? As defined by the World Data Bank, high-technology exports are products with high R&D (Research and Development) intensity, such as aerospace, computers, pharmaceuticals, scientific instruments and electrical machinery. That doesn't necessarily mean 'end products' - the gadgets, drugs, meters, etc. that end up in your hands for use; rather, it often means the parts or chemicals that go into those devices which are often assembled elsewhere.

It's Not Who You Might Think

We tend to associate that term with countries such as Japan, the United States, Great Britain, the Nordic Countries, France, India, Taiwan and China to name a few. It's reasonable to make that assumption because those countries do indeed export high-tech products in large amounts. However, that's not the only thing they export since most are large enough to diversify. Therefore, when we look at their high-tech exports as a percentage of their total exports, it mostly rises no higher than 30%.

Smaller Countries Lead the Way

This week we focus on several small countries which have chosen to primarily focus on high-tech exports as a means to bolster their economy. This tends to net two benefits:

1. Foreign investment which brings in much-needed capital.
2. Local jobs which lowers unemployment.

Take Costa Rica, for example: prior to 1995, they had virtually no exports in the technology sector. However, since they offered tax exemptions for those willing to invest in the country, several technology-based companies have begun to develop in the area such as Intel and GlaxoSmithKline.  Looking at the above chart, it is plain to see how smart, smaller countries are embracing high-technology and using it to gain a foothold in the global market.

Foreign Investment

Do the countries shown above also show healthy foreign investment as argued above?

Look at the graph below. Most of them are in the upper echelon with some having significant investment from abroad. It is interesting to look at Ireland in this scenario. Given that country's other problems, even their high-tech exporting business suffered mightily, which suggests that some problems are just too large to overcome by being smart investors.

These high-tech exporting countries attract foreign investors.

High-tech Investment Produces Local Jobs

Have these same countries seen an increase in local jobs due to producing high-tech exports as argued above?

For the most part, their unemployment rates hover beneath the global average (a good thing). Even the Philippines, with a history of economic turmoil, has recently seen lower unemployment figures and is predicted to be one of the 'Next Eleven' largest economies. For a chart showing these countries' unemployment figures, see below:

With the exception of Ireland, these countries are looking good.

Keep an Eye on These Countries

In addition to the 'Next Eleven', this author is suggesting that the other five countries highlighted here should also be included when making rosy economic predictions due to reasons described above (with Ireland a possible exception until they get their problems straightened out). The only country showing problems recently is Ireland for reasons cited above. No matter what data you have on hand, however, sometimes situations come along that ruin the party.

Recessions Affect Everyone

When the world economy takes a dive, it tends to affect everybody.

During the global recession in 2008, nearly everyone was affected which can also be reflected in the above graphs to a certain degree. However, the high-tech industry was amazingly resilient and only dipped a little. That being said, it would be prudent for these countries to diversify, thereby bolstering their ability to withstand global financial downturns.

Conclusion

Presented here are several examples of smaller countries gaining a foothold in the global economy via high technology exporting. While it doesn't guarantee success, it does trend towards a robust economy for those countries willing to take the risk. When other extenuating circumstances are not intervening (as noted with Ireland), these countries seem to exhibit stable economies. This is not to say that other types of exports would not also produce a similar effect; only high-tech exports were examined here. For those smaller, struggling countries, they might consider allowing foreign investment to bolster this sector - it certainly seems to net positive gains.

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Questions:
1) Many of the countries highlighted here are island nations - coincidence?
2) Will other small countries follow suit and allow foreign investment in this sector?
3) What other types of export allow for a resilient economy?

Data:

http://data.worldbank.org/

Code:
These graphs were generated using the 'ggplot2' package within the R programming language. In the future, different plotting packages will begin to be seen here, including 3d plots and trellis plots. Stay tuned!

1st graph:

ggplot(exports.melt.frame, aes(x=year, y=value, group=year), na.rm = TRUE) +
  geom_boxplot(na.rm = TRUE) +
  geom_point(data=subset(exports.melt.frame, Country.Name == "Costa Rica"),
    aes(x=year, y=value, color="Costa Rica")) +
  geom_point(data=subset(exports.melt.frame, Country.Name == "Ireland"),
    aes(x=year, y=value, color="Ireland")) +
  geom_point(data=subset(exports.melt.frame, Country.Name == "Malaysia"),
    aes(x=year, y=value, color="Malaysia")) +
  geom_point(data=subset(exports.melt.frame, Country.Name == "Malta"),
    aes(x=year, y=value, color="Malta")) +
  geom_point(data=subset(exports.melt.frame, Country.Name == "Philippines"),
    aes(x=year, y=value, color="Philippines")) +
  geom_point(data=subset(exports.melt.frame, Country.Name == "Singapore"),
    aes(x=year, y=value, color="Singapore")) +
  
  geom_line(data=subset(exports.melt.frame, Country.Name == "Costa Rica"),
    aes(x=year, y=value, group=1, color="Costa Rica", linetype=5), size=1.1) +
  geom_line(data=subset(exports.melt.frame, Country.Name == "Ireland"),
    aes(x=year, y=value, group=1, color="Ireland", linetype=5), size=1.1) +
  geom_line(data=subset(exports.melt.frame, Country.Name == "Malaysia"),
    aes(x=year, y=value, color="Malaysia", group=1, linetype=5), size=1.1) +
  geom_line(data=subset(exports.melt.frame, Country.Name == "Malta"),
    aes(x=year, y=value, color="Malta", group=1, linetype=5), size=1.1) +
  geom_line(data=subset(exports.melt.frame, Country.Name == "Philippines"),
    aes(x=year, y=value, color="Philippines", group=1, linetype=5), size=1.1) +
  geom_line(data=subset(exports.melt.frame, Country.Name == "Singapore"),
    aes(x=year, y=value, color="Singapore", group=1, linetype=5), size=1.1) +
  
  scale_colour_manual(values=cbPalette) +
  
  ylab("% of Exports Which are High Tech") +
  xlab("Year") +
  
  opts(title="Percentage of Country's Exports which are High Tech",
    legend.title = theme_blank(),
    panel.background = theme_blank(),
    axis.text.x=theme_text(angle=45, hjust=1))

***The other two graphs are very similar to the 1st graph, just using a different data set, so that code is not included here.***

Further Reading: