Excellence in Innovation and Knowledge Economy

Yücel Altunbas¸ak


This chapter addresses the challenge for middle-income and technologically developing countries to reach sustainable high levels of welfare based on R&D, innovation, and education. The initial discussion focuses on the middle-income trap, and subsequently proceeds to the discussion of the key components of an R&D, innovation, and entrepreneurship system intended to overcome this trap. The key components are built upon four categories of best practices. The first two categories are best practices to foster entrepreneurship (techno-entrepreneurship, venture, entrepreneurship culture) and mission-oriented programs, including mega projects. The third and fourth categories are stimulating research quality (performance-based funding schemes) and supporting the innovation system with R&D awareness. The best practices are drawn from leading examples of policy mechanisms from the Republic of Turkey, the US, South Korea, Japan, Brazil, India, China, Singapore, Mexico, and EU countries (UK, Sweden, Finland, and the Czech Republic). The chapter concludes with policy advice and key recommendations to improve innovation excellence in technologically developing countries, including implications for oil-rich countries.

R&D and Innovation to Overcome the Middle-Income Trap

The fast pace of technological developments in our age imposes a challenge to middle-income and less technologically developed, high-income countries to strive to reach the highest peak in R&D and innovation. This challenge is none other than the ambitious process of seeking to ascend an apex of excellence in a pursuit of 'excellence in innovation.' On this path, countries may be faced with barriers that may hinder them from making full use of their potential in order to rise toward the peak. Most notably, these barriers may be associated with the state of the innovation system and its integrity when compared to the progress of economic growth. In such a situation, countries must surmount another hurdle, this time to rise up to the challenge of transforming their economy into one that is based on knowledge and innovation. In a technical sense, countries must overcome the situation of what is known as the “middle-income trap” to reach the status of a knowledge-based economy in a relatively short period of time.

The concept of the 'middle-income trap' defines a condition in which middleincome countries are restricted in their ability to increase gross national income (GNI) per capita despite their efforts to do so. A similar situation applies to technologically less advanced, high-income countries, such as the Kingdom of Saudi Arabia (KSA), which need to develop ascending strategies other than the exploitation of natural resources. In this condition, the income of a country increases sufficiently to enable it to advance beyond low-skilled labor-intensive activities. Yet, since the innovation system, including its physical and human capital, has not been developed sufficiently, the quality of the outputs of the country remains underdeveloped. This limits the country's capability to compete with high-income countries in highly sophisticated products. The country continues to remain behind advanced economies in higher-value products, that in turn affects their relative standing in GNI per capita values [1, 2].

Figure 1 compares countries based on the level of their progress in GNI per capita values over a 50-year timeframe. The axes are based on GNI per capita in 1963 and 2013, respectively. In Fig. 1, those countries that sustained their growth are positioned in the top-right corner, while those that escaped the middle income trap and experienced a quantum leap in GNI per capita values are grouped top center. The countries that remained in the middle-income trap are situated in the boxed area in the center of Fig. 1 (see red box), while those countries that become poorer are located in the bottom half. The axes are the logarithm of the ratio of GNI per capita values relative to the US values in 1963.

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