economy: Challenges for future growth.
By Jan Fagerberg, University of Oslo *
Paper prepared for “Green roads to growth” project and conference, Copenhagen March 1-2, 2006
This paper discusses the role of knowledge, technology and innovation in economic growth within the context of the “Green roads to growth” project. It summarizes the current state of the art in this area, illustrates this with selected graphs and tables based on published statistics and raises issues for discussion. The main focus is on the big shift of our understanding of economic growth that has taken place in recent decades, exemplified by emergence of terms such as “the knowledge based economy”, “the ICT revolution” and “innovation”, which although not an entirely new issue – did not get much attention a few decades ago. Particular emphasis is placed on reviewing the new micro-evidence on innovation and the knowledgebased economy that has emerged in recent years. However, since extensive micro-evidence on innovation and knowledge-based growth is available only for a limited number of developed economies, we also consider other types of indicators (that are available for a larger set of countries), and present a synthetic overview of the differences in performance across different parts of the globe. Finally we summarize the main trends and discuss the challenges posed by these for future growth, sustainability and policy.
(*) I am indebted to Martin Srholec for assistance in producing many of the empirical illustrations used in this paper and to Mario Pianta and Jørgen Rosted for useful comments and suggestions. Remaining errors and omissions are my own responsibility. Address for correspondence is email@example.com (P.O. Box 1108 Blindern, N-0317 Oslo, Norway).
It is difficult to find an issue that is more central to policy makers’ agenda than how to achieve economic growth. Indeed, it is generally acknowledged that economic growth is seen as essential for the realization of important policy objectives, such as income, welfare (including the environment) and – last but not least - employment. The ability of a country to foster economic growth and, hence, realize other important policy objectives is what is often termed the “competitiveness” of a country (Fagerberg 1988, 1996, Fagerberg, Knell and Srholec 2004). Therefore it comes as no surprise when policy makers in the European Union want to make Europe the most competitive region in the global knowledge based economy (the Lisbon agenda). What this means is simply to get the European Union on a growth path that is consistent with the realization of important policy objectives. Although this may sound simple enough experience tells us that getting there may not be just as simple. In fact, the EU has not come very far in realizing the ambitious goals of the Lisbon agenda, and concerns have been expressed on to what extent the political steps taken in order to do so are really appropriate. This reminds us of the important insight that any policy aimed at raising long-term growth has to be based on a thorough understanding of the factors behind growth and the concrete circumstances into which the policy is going to be implemented. In the next sections we discuss the first of these issues in a bit more detail. Focus will be on the big shift of our understanding of economic growth that has taken place in recent decades, exemplified by emergence of terms such as “the knowledge based economy” (which seems to be on everybody’s lips these days), “the ICT revolution” and “innovation” (which - although not an entirely new issue – did not get much attention a few decades ago). Particular emphasis is placed on reviewing the new micro-evidence on innovation and the knowledge-based economy that has emerged in recent years and the conclusions that can be drawn from this on how knowledge based growth works at what the...