How does the UK rank as a knowledge economy?

Now the UK has withdrawn from the European single market, it will need to rethink its current and potential future position in the world economy. Some helpful context is provided, perhaps, by some statistics summarising the value added from knowledge and technology intensive industries, taken from the latest edition of the USA’s National Science Board Science and Engineering Indicators 2020.

The plot shows the changing share of world value added in a set of knowledge & technology intensive industries, as defined by an OECD industry classification based on R&D intensity. This includes five high R&D intensive industries: aircraft; computer, electronic, and optical products; pharmaceuticals; scientific R&D services; and software publishing. It also includes eight medium-high R&D intensive industries: chemicals (excluding pharmaceuticals); electrical equipment; information technology (IT) services; machinery and equipment; medical and dental instruments; motor vehicles; railroad and other transportation; and weapons. It’s worth noting that, in addition to high value manufacturing sectors, it includes some knowledge intensive services. But it does exclude public knowledge intensive services in education and health care, and, in the private sector, financial services and those business services outside R&D and IT services.

From this plot we can see that the UK is a small but not completely negligible part of world advanced economy. This is perhaps a useful perspective from which to view some of the current talk of world-beating “global Britain”. The big story is the huge rise of China, and in this context, inevitable that the rest of the world’s share of the advanced economy has fallen. But the UK’s fall is larger than competitors (-46%, cf -19% for the USA and -13% for rest of EU).

The absolute share tells us about the UK’s overall relative importance in the world economy, and should be helpful in stressing the need, in developing industrial strategy, for some focus. Another perspective is provided if we normalise the figures by population, which give us a sense of the knowledge intensity of the economy, which might give a pointer to prospects for future productivity growth. The table shows a rank ordered list by country of value added in knowledge & technology intensive industries per head of population in 2002 and 2018. The values for Ireland & possibly Switzerland may be distorted by transfer pricing effects.

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