Economic Change and Restructuring

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

Innovation capacity and economic development: China and India



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.


China India Innovation capability Domestic firms ICT Biotech 



Intellectual property


Industrial research institutes


Multinational corporations


National development and reform commission (of China)


Newly industrialized economies


National innovation system


Private equity


Research and development


Science and technology


Special economic zones


Total factor productivity


Agreement on trade-related aspects of intellectual property rights


Township and village enterprises


Technology policy state


United States patent and trademark office


Venture capital


World intellectual property organization

JEL Classification

O31 O3 L65 


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Copyright information

© UNU-WIDER 2010

Authors and Affiliations

  1. 1.Michigan State UniversityEast LansingUSA

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