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Innovation and Growth

Chasing a Moving Frontier

image of Innovation and Growth

Innovation is crucial to long-term economic growth, even more so in the aftermath of the financial and economic crisis. In this volume, the OECD and the World Bank jointly take stock of how globalisation is posing new challenges for innovation and growth in both developed and developing countries, and how countries are coping with them. The authors discuss options for policy initiatives that can foster technological innovation in the pursuit of faster and sustainable growth.

 

The various chapters highlight how the emergence of an integrated global market affects the impact of national innovation policy. What seemed like effective innovation strategies (e.g. policies designed to strengthen the R&D capacity of domestic firms) are no longer sufficient for effective catch-up. The more open and global nature of innovation makes innovation policies more difficult to design and implement at the national scale alone. These challenges are further complicated by new phenomena, such as global value chains and the fragmentation of production, the growing role of global corporations, and the ICT revolution. Where and why a global corporation chooses to anchor its production affects the playing field for OECD and developing economies alike.

Selected as a 2009 Notable Document by the American Library Association Government Documents Round Table.

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Korea and the BICs (Brazil, India and China): catching-up experiences

This chapter tests the neo-Schumpeterian model of Aghion et al. with industry-level data to analyse how Brazil, India and China are catching up to Korea’s technological frontier in a globalised world. It validates Aghion et al.’s inverted-U hypothesis (industries closer to the technological frontier innovate to escape competition while longer distances discourage innovating). It suggests that for effective catch-up, distance-shortening (or innovation-enhancing) policies may be a necessary complement to liberalisation. Korea and China combined a variety of distance-shortening policies with financial subsidies to promote high-technology industries and an export-led growth strategy. Following liberalisation, they leveraged competition to spur catch-up. Brazil, which in 1980was as rich as Korea, and India, which was as rich as China, are catching up more slowly. Import-substitution industrialisation strategies saddled Brazil and India with a large anti-export bias, and unfocused attention to innovation-enhancing policies dampened global competitiveness. Post-liberalisation, many of their industries were too far from the technological frontier to benefit effectively from competition. The catch-up experiences of the BICs show that distance from the technological frontier matters and that the design of country-specific distance-shortening policies can be an important complement to trade liberalisation in promoting catch-up with richer countries.

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