Innovation and Economic Development

Innovation is often seen as carried out by highly educated labor in R&D intensive companies with strong ties to leading centers 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, Section 1 puts forward the idea that innovation may be as relevant in the developing part of the world as elsewhere. Section 2 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? Section 3 surveys attempts to identify and measure capabilities at the national level. However, the development of such capabilities, it is argued, depends in important ways on what firms do. Section 4, therefore, focuses on recent attempts to survey innovation activity in firms in developing countries and what can be learnt from that. Section 5 discusses the role of domestic versus foreign sources in fostering innovation in the developing part of the world. The final section summarizes the main lessons.