Governments Can Advance Innovation: To Create Conditions for Innovation, Governments Should Promote E-Literacy and Capital Markets as Well as Set the Right Legal and Technological Infrastructure in Place

By Aggarwal, Vinod K. | International Trade Forum, July-September 2003 | Go to article overview

Governments Can Advance Innovation: To Create Conditions for Innovation, Governments Should Promote E-Literacy and Capital Markets as Well as Set the Right Legal and Technological Infrastructure in Place


Aggarwal, Vinod K., International Trade Forum


Q Why do some countries, like India, succeed in moving into growing trade sectors based on knowledge capital (such as software) while others fail?

A Access to cheap labour and raw materials do not necessarily predict trade success. Instead, as the case of India shows, countries can bypass standard views of static classical trade theory and develop comparative advantage by tapping into the emerging technological arena. India's rapid development seems to be the product of four key factors:

* emphasis on education, specifically in advanced technological fields;

* growth of learning centres such as the Indian Institutes of Technology, which are some of the most competitive academic centres in the world, together with training companies such as the National Institute of Information Technology, which focus on large scale technical training;

* proficiency in English among the middle classes; and

* high levels of Indian migration to the United States and elsewhere that has led to both joint ventures and outsourcing in the information technology (IT) industry.

Q What examples show us that information Technology and human capital are key to competitive advantage for exporters in world markets?

A India's recent economic success is not an isolated case, but rather a prime example of new economic growth. Countries such as China, Korea, Malaysia and Singapore have been using information technology and human capital to construct competitive export industries. A comparison between these countries, and countries rich in oil reserves or other natural resources, reveals that nations that have succeeded in advancing their IT capabilities and developing a skilled workforce are experiencing much higher levels of sustained growth than countries that continue to rely on commodity exports.

Q What is governments role in supporting innovators and how?

A In terms of strategically promoting growth, the government should be both supportive and adaptive in its relationship with innovators. Rather than directly investing in costly and inefficient state-owned enterprises, government should play a more nuanced role. As the cases of the United States and East Asian countries suggest, governments can foster innovation by actively constructing the physical and virtual infrastructures of emerging industries.

Although there is often a collective amnesia about the United States government's role in the early stages of the Internet, it was the Advanced Research Projects Agency (ARPA), a United States Department of Defense project, which led to the creation of ARPANET. Eventually, the Internet emerged as a project that united government, academic and business experts in an arena that was not overtaken by a monopoly of government involvement or ownership. …

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