What does the state of economic development refer to?

The state of economic development of an economy refers to its hard and soft economic infrastructure and to the socio-economic well-being of its citizens. Simple definitions equate development to a country’s per capita income whereas more complex explanations emphasise higher states of welfare. More complex accounts go beyond measures of income/well-being focusing on aspects of existing economic structures. These are, however, much more controversial since beyond a focus on broad sectoral specialisations it is less clear which factors should be used to evaluate more or less advanced economic development.  From an innovation perspective, the state of economic development is likely to have a profound effect on the types and amounts of innovation performed; broadly speaking, countries with more advanced economies tend to have more innovative firms working on a mix of radical and incremental technological innovation. The various domain areas upon which a country’s innovation performance depends, e.g. public sector research, education, financial markets, etc. also tend to grow in sophistication with increasing economic development.

GDP per capita is the most popular measure of economic development, but can be frequently misleading and fail to reflect its many aspects. A rough categorisation across different states of economic development, based on GDP per capita, divides countries into low-, middle- and high-income economies. This, however, is a rather strong simplification on account of two important caveats:

• A high GDP per capital is not necessarily equated with well-being. The OECD is working on improved assessments of well-being and has recently launched its Better Life Index, which is based upon the following dimensions: i) Housing, ii) Income, iii) Jobs, iv) Community, v) Education, vi) Environment, vii) Governance, viii) Health, ix) Life Satisfaction, x) Safety, xi) Work-Life Balance.

• A high GDP per capita does not always mean countries’ economic development is advanced. In this regard, other factors of economic structure should be taken into account, including economic specialisation, the dimensions of income inequality and the structure of exports and imports.  Furthermore, when referring to the state of development of national economies, the often substantial differences between more- and less-advanced regions should also be borne in mind.

PUBLIC SECTOR RESEARCH

How is economic development relevant to the contributions of public sector research activities to innovation performance?

The state of a country’s economic development is an important factor in shaping the resources given over to R&D: wealthier countries tend to devote more of their national income to R&D than their less well-off counterparts. Furthermore, capabilities and resources accumulate over time, which means that those countries that have been economically advanced for some time have a more developed hard and soft infrastructure to draw upon. The consequences are clear: less economically developed countries contribute less to the scientific record, have fewer world-leading centres of excellence, and engage in less technological development.

How does the state of economic development shape the interests, activities and resources of the relevant actors?

In less economically developed countries, research universities and PRIs are often the dominant research performers and therefore have a potentially important role to play in supporting innovation performance. This potential is often unrealised, however, since local firms, both large and small, tend to have weak absorptive capacities for the outputs of public sector research. Moreover, markets might be too small to reap scale economies from innovation that bigger and more developed markets might offer. Exports to foreign markets cannot effectively compensate since exporting is costly and only affordable for a few firms.

Advice, consultancy and extension services can be particularly useful but are difficult to deliver effectively and are often at odds with the interests of public sector researchers, who may be more interested in conducting research than in promoting its application. Foreign firms might be in a privileged position in that resource-constraints might be less binding and collaborations more interesting to the extent that public sector research offers attractive research opportunities.

Which policies are relevant to economic development and its shaping of the contributions of public sector research to innovation performance?

Innovation policies cannot ignore the state of economic development and specifically the fact that certain baseline conditions might not be in place for middle- and low-income economies. It is arguably the case that certain conditions – including, for example, the quality of public institutions and governance arrangements – are a pre-condition for the success of many policies. A critical examination of the relevance of certain policies needs to necessarily set out these 'policy framework conditions' and verify these are in place before embarking upon more detailed policy design.