Recommendations for Excellence in Innovation to Escape the Middle-Income Trap

The effort that countries must make to escape the middle-income trap requires an intense dedication to strengthening the R&D, innovation, and entrepreneurship ecosystem to enable the process of attaining the peak of excellence in innovation. The pursuit of perfecting the ecosystem to the best that it can be requires boosting the performance of the innovation system and its actors. Ultimately, well-functioning ecosystems can enable entire economies to become knowledge based and innovation driven.

Best practices from emerging and fast-growing economies (including innovation-based economies, transition to innovation-based economies, and efficiencybased economies) have indicated that a series of support mechanisms and sound policy design are needed to effectively foster R&D, innovation, and entrepreneurship. For ease of comparison, these support mechanisms have been grouped into entrepreneurship-oriented best practices, mission-oriented programs, and mega projects, stimulation of research quality, and supporting the innovation system through R&D culture and awareness among innovation actors and society. Based on the overview of these best practices, four key recommendations are made:

• Support mechanisms that are designed to have varied, phased characteristics are useful for promoting entrepreneurial activities stage-by-stage. Based on best practices, these phases may address the level of maturity of start-up firm establishment, the preparation and implementation of the business plan, support for proof-of-concept and related R&D activities, and transition to the commercialization phase from idea to the market. At the same time, these support mechanisms should be presented in a robust policy mix that integrates mentorship support and venture capital funds' availability. If necessary, especially in emerging economies, the venture capital funds can be stimulated and encouraged through “fund of funds” approaches. In addition, best practices to promote an increase in the entrepreneurship culture in universities include the design and implementation of a novel university ranking index.

• The implementation of mission-oriented approaches that integrate both top-down

direction setting and the bottom-up interests of the researchers is instrumental in allowing the channeling of resources toward the development of critical technologies. These approaches are particularly useful for gaining precious time in the process of catching up to the outputs of more sophisticated innovation systems and innovation-based economies. The flexibility, and thus the success, of mission-oriented approaches can be enhanced with the systematic implementation of call-based programs, which are crucial for increasing innovation excellence. In addition, mega projects that are implemented as special kinds of mission-oriented approaches will aid in directing innovation actors toward large-scale projects.

• Approaches that favor excellence should be able to complement the larger effort

of improving the performance of the innovation ecosystem, especially toward producing the innovative outputs that will aid the country in escaping the middle-income trap. Such approaches that favor research excellence and research quality include the variability of project overheads according to research performance, as well as more innovative approaches to increase the level of positive competition between universities. This may further relate to the results of a university ranking index. Overall, tools to improve research quality may involve performance-based incentive schemes for universities, researchers, and firms. The design of policy instruments to improve research quality in the ecosystem will be as important as new programs.

• The larger effort to escape the middle-income trap by taking as large strides as are possible toward becoming an innovation-based economy requires the intake of new innovation actors into the system. The diversity can range from R&D actors due to submit their first R&D project to the encouragement of future entrepreneurs and researchers through science fairs. At the same time, it is important that the level and penetration of science literacy is diffused within society so that the appreciation and usage of technological innovations in society can be increased.

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