University of Oslo Innovation and Economic Development Paper Analysis

Jan Fagerberg, Martin Srholec and Bart Verspagen  (University of Oslo) in their  Paper” Innovation and Economic Development” (http://www.sv.uio.no/tik/InnoWP/Fagerberg%20et%20al%202009.pdf) commented that  “Innovation is often seen as carried out by highly educated labour in R&D intensive companies with strong ties to leading centres of excellence in the scientific world.” Seen from this angle innovation is a typical “first world” activity. There is, however, another way to look at innovation that goes significantly beyond this high-tech picture. In this, broader, perspective, innovation – the attempt to try out new or improved products, processes or ways to do things – is an aspect of most if not all economic activities. In this sense, it is argued, innovation may be as relevant in the developing part of the world as elsewhere.

The paper discusses the existing theoretical and empirical literature on the subject. An important conclusion is that to be able to exploit technology to their own advantage, developing countries need to develop the necessary capabilities for doing so. But what are these capabilities and how can they be measured? The paper surveys attempts to identify and measure capabilities as the national level. However, the development of such capabilities, it is shown, depends in important ways on what firms do. They focus on recent attempt to survey innovation activity in firms in developing countries and what can be learnt from that. Finally they discuss the role of domestic versus foreign sources in fostering innovation in the developing part of the world.

This paper concludes: Until recently most people would have considered it odd to consider innovation as an important issue for developing countries, and many probably still see it that way. This scepticism is based on the widely shared view that innovation primarily is of interest for high-tech firms in advanced environments. Based on this perspective new technologies emerge in advanced economies. However, since technology from this perspective has strong “public good” properties, it will gradually diffuse to the developing part of the world. Hence, diffusion of new technology, created through innovation in the advanced part of the world, may from this perspective be expected to work as powerful equalizer in the global economy, making it possible for poor countries to quickly raise their standards of living.

Although the logic of this “public good” approach to the role of technology and innovation seemed convincing at first, it gradually became evident that it could not be the whole story. Two pieces of evidence in particular came to undermine the approach. First it became evident that the convergence in technology and productivity that the approach predicted did not materialize. Second, the most famous examples of countries that managed to escape the low development trap and raise their standards of living towards developed country levels relatively quickly were far from being passive adopters of new, developed countries technologies. On the contrary countries such as Korea (South), Taiwan and Singapore, placed great emphasis on generating what later became known as “technological capabilities” through a concerted effort by public and private sector actors.

In spite of these developments, many economists continue to be unconvinced by the “capability” approach. In fact, the evidence shows that innovation is quite widespread among developing country firms, is associated with higher productivity (e.g., development) and, as in the developed part of the world, is dependent on a web of interactions with other private and public actors. This is not to say that innovation in developed and developing countries are identical in every respect but in qualitative terms innovation is found to be a powerful force of growth in both and therefore an issue that it is imperative to get a better understanding of, theoretically as well as empirically.