Jakarta: Innovation is critical to productivity growth and economic progress in developing East Asia in a rapidly changing world, according to a new World Bank report launched on Tuesday.
According to the report, countries in developing East Asia have an impressive record of sustained growth and poverty reduction.
However, slowing productivity growth, uncertainties in global trade, and technological advances are increasing the need to transition to new and better modes of production to sustain economic performance.
To support policy makers in meeting this challenge, The Innovation Imperative for Developing East Asia examines the state of innovation in the region, analyzes the key constraints firms face in innovating and lays out an agenda for action to spur innovation-led growth.
"A large body of evidence links innovation to higher productivity," said Victoria Kwakwa, World Bank Vice President for East Asia and Pacific, in a press release on Tuesday.
"The covid-19 pandemic, climate change, along with the fast-evolving global environment, have raised urgency for governments in the region to promote greater innovation through better policies," Kwakwa added.
While developing East Asia is home to several high-profile innovators, data presented in the report show that most countries in the region (except China) innovate less than would be expected given their per capita income levels. Most firms operate far from the technological frontier.
Moreover, the region is falling behind the advanced economies in the breadth and intensity of new technology use.
The report identifies several factors that impede innovation in the region, including inadequate information on new technologies, uncertainty about returns to innovation projects, weak firm capabilities, insufficient staff skills, and limited financing options.
In addition, countries’ innovation policies and institutions are often not aligned with firms’ capabilities and needs.
To spur innovation, the report argues that countries need to reorient policy to promote diffusion of existing technologies, not just invention; support innovation in the services sectors, not just manufacturing; and strengthen firms’ innovation capabilities.
Taking this broader view of innovation policy will be critical to enabling productivity gains among a broader swath of firms in the region.
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