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Is the landscape of innovation changing?

Is the landscape of innovation, traditionally concentrated in a handful of OECD countries, shifting worldwide? To what extent has the recent economic crisis affected this change? And what may be the implications of this shift for global growth?

It was to tackle some of these pressing questions that a high-level symposium, bringing together policymakers from developing and developed countries including from Vietnam, Brazil and China; leading academics including Harvard University’s Philippe Aghion; and experts met in Paris in January 2012 at the invitation of the OECD and the Growth Dialogue, in partnership with the World Bank Institute.

Innovation has long been identified as central to sustained economic growth. With 2012 real GDP growth forecast globally at just 2.5% and recent trends and data pointing to future sluggishness, the recent economic crisis has raised concerns about potential growth, notably in advanced economies. This has accordingly increased the focus of many governments on investments in innovation as one of the main ways to boost medium- to longer-term growth prospects.

With many developed countries lacking the budgetary space needed to invest in R&D (some recent stimulus packages notwithstanding), and innovation indicators accordingly depressed, the current crisis has rendered more prominent an ongoing global trend already visible in many other sectors: the spectacular rise of a few major developing countries. More specifically, China is now the 4th ranked patenter and 2nd largest spender on R&D in the world. Brazil is planning to sponsor 100,000, students to go abroad to study in the best universities, and is also discussing ways to attract back the best talents from its overseas diaspora. India is redoubling its efforts to expand higher education. Countries as diverse as Vietnam and Colombia are also giving more attention to innovation strategies. Multi-national companies that account for 60% of global R&D are investing heavily in major developing markets.

Have these recent investment trends translated into higher innovation outputs so far, thus changing the geography of innovation? “Not necessarily and not yet” seemed to be the conclusion emerging from the majority of the discussions at the symposium. The reasons for this seem to be manifold, as several conditions need to be met. First, the quality and relevance of R&D and the qualifications gained by higher education graduates was underscored. Second, the national business environment needs to be conducive to the Schumpeterian process of “creative destruction” of firms by allowing the rapid entry of small dynamic firms and the speedy exit of non-performing ones. Finally and importantly, investments in basic innovation inputs (higher education, R&D) do not necessarily result in higher innovation outputs nor do they automatically create economic value, as research suggests that countries also need to have at minimum a vibrant mix of entrepreneurs, venture capitalists and other finance providers, as well as supporting institutions, further to the relevant R&D and skilled graduates.

What implications may this new environment and changing landscape have for innovation policies? It would seem that a distinction should be made between three groups of countries. On the one hand, in developed countries, governments are striving to design well-targeted and ‘smarter’ policies to foster innovation with less public funding. On the other, in large developing countries, policies will need to focus on improving the quality of R&D spending and relevant skills upgrading, while creating the conditions for a continuing absorption of existing technologies. Finally, the poorest developing countries are at risk of falling further behind, unless they invest in the educational and technical capabilities to take advantage of this changing global context.

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