Innovation Efficiency in Asia

Recent times have seen the emergence of endogenous growth theory which emphasizes several economic features, e.g., the increasing returns to scale, learning by doing, knowledge capital and the dynamic spillover effects from the growth of the export sector and foreign direct investment. This new growth theory has two profound implications. One is theoretical and the other empirical. Theoretically it implies a substantial modification, if not rejection of the neoclassical model of growth followed in the Solow-Swan type of model. Secondly, the last two decades (1997–2007) has seen a rapid rate of growth of the newly industrializing countries (NICs) of the East Asian Pacific Rim such as Hong Kong, Singapore, South Korea and Taiwan. Empirical data seem to show that growth in knowledge capital, openness in trade and outward looking policy measures in these countries have greatly contributed to their success rates. For example, Korea’s export growth rate of 22.9% over the period 1965–87 accompanied the average per capita income growth rate of 6.4%. China’s reform of its national innovation system started in the 1990s. In 2000, 60% of the country’s R&D spending was funded and performed by the enterprise sector, comparable to that of most OECD countries.