Innovation, Economic Transformation and Sustained Growth

This chapter reviews and discusses the mechanisms and foundations of sustained growth. First, growth theory is briefly summarized, with an emphasis on the roles of capital, technology, and human resources. APEC advocates innovative growth and presents a strategy that emphasizes ICT. There are several different arguments regarding the impact of digital development on growth, including the view that some of its benefits cannot be captured by GDP. This argument may also be applied to the benefits of process innovation beyond ICT. Innovation is the key to growth, and technology “catch-up” is important for developing countries. To drive a country’s transformation through innovation, factors such as learning, infrastructure, and institutions can be considered crucial endowments. A review of the impact of fiscal, public debt, inflation, exchange rate, and trade policies and institutions on growth shows that sound economic policies support growth, but none can be identified as a sure determinant. Institutions are important for sustaining growth, and recent arguments have focused on their inclusiveness. However, some researchers contend that factors such as human resources, which build institutions, may be more important than the institutions themselves.