Economic Change and Restructuring

, Volume 44, Issue 1–2, pp 49–73 | Cite as

Innovation capacity and economic development: China and India

Article

Abstract

Decomposing the GDP growth from 1981 to 2004, this paper finds that innovation capacity has contributed significantly to the economic growth of China and India, especially in the 1990 s. Outputs of the national innovation system, measured by patents and high-tech/service exports, demonstrate the considerable progress China and India have made in innovation capacity. The enhanced innovation capacity of China and India is primarily due to their heavy investment in the inputs of innovation system, i.e., R&D expenditure and R&D personnel, in recent decades. This paper emphasizes the role that the governments have played in promoting innovation capacity and their contribution to economic development. Both governments have transformed their national innovation systems through linking the science sector with the business sector, providing incentives for innovation activities, and balancing import of technology and indigenous R&D effort. Using case studies of domestic biotech firms in China and India, this paper also offers micro-level insights on innovation capacity and economic development: (1) innovation capacity has become essential for domestic firms’ market success and (2) global institutional factors and national government policies on innovation have considerable influence on the choice of innovation at the firm level, i.e., to conduct indigenous R&D or to import foreign technology.

Keywords

China India Innovation capability Domestic firms ICT Biotech 

Abbreviations

IP

Intellectual property

IRIs

Industrial research institutes

MNCs

Multinational corporations

NDRC

National development and reform commission (of China)

NIEs

Newly industrialized economies

NIS

National innovation system

PE

Private equity

R&D

Research and development

S&T

Science and technology

SEZs

Special economic zones

TFP

Total factor productivity

TRIPS

Agreement on trade-related aspects of intellectual property rights

TVEs

Township and village enterprises

TPS

Technology policy state

USPTO

United States patent and trademark office

VC

Venture capital

WIPO

World intellectual property organization

JEL Classification

O31 O3 L65 

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© UNU-WIDER 2010

Authors and Affiliations

  1. 1.Michigan State UniversityEast LansingUSA

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