Developing countries in East Asia, including the Philippines, need to support innovation to promote productivity growth and economic progress, a new World Bank report revealed.
While developing countries in East Asia have an impressive record of sustained growth and poverty reduction, World Bank noted that slowing productivity growth, uncertainties in global trade, and technological advances could hamper the region’s sustained economic performance.
Even developing East Asia is home to several high-profile innovators, World Bank noted 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. And the region is falling behind the advanced economies in the breadth and intensity of new technology use,” the World Bank’s “The Innovation Imperative for Developing East Asia” report said on Wednesday, Feb. 24.
To support policy makers in meeting the challenge, the World Bank report identified several factors that impede innovation in the region, including inadequate information on new technologies, uncertainty about returns to innovation projects, and weak firm capabilities.
The report also cited the insufficient staff skills, and limited financing options.
Moreover, countries’ innovation policies and institutions are often not aligned with companies’ capabilities and needs, the bank added.
Xavier Cirera, World Bank report’s lead author, said that the vast majority of firms in developing East Asia are currently not innovating.
“A broad-based model of innovation is thus needed–that supports a large mass of firms in adopting new technologies, while also enabling more-sophisticated firms to undertake projects at the cutting edge,” Cirera said.
To spur innovation, the report said 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.
The report said that taking this broader view of innovation policy will be critical to enabling productivity gains among a broader swath of firms in the region.
“It is important for governments in the region to support innovation in services, given their rising importance in these economies–not only for better service quality but increasingly as key inputs for manufacturing,” Andrew Mason, also a lead author of the report, said.
Countries also need to strengthen key complementary factors for innovation, including workers’ skills and instruments to finance innovation projects, the report said.
“Building stronger links between national research institutions and firms will also be critical to fostering innovation-led growth in the region,” it added.