Can Asia lead the future global knowledge economy?

Asian economies can draw on the demographic advantages of a youthful population in some countries, a growing middle-class, an expanding services sector and creative industries to leapfrog more advanced countries and take the lead in the “knowledge-based economy of the future”, says a just-released report from the Asian Development Bank, or ADB.

But while some countries like Japan, Singapore and South Korea are surging ahead, developing countries in Asia will need to invest more in higher education and training, innovation and information technology if the region as a whole is to surpass the economies of the West, according to the report Innovative Asia: Advancing the knowledge-based economy*.

Countries that score higher on knowledge economy indicators have higher levels of economic development, according to the World Bank.

Its Knowledge Economy Index, or KEI, includes measures of economic incentives for using new and existing knowledge, a highly educated and skilled population, an efficient system for innovation adoption – including research centres – and the use of information technologies.

Major advanced countries in the OECD, where more than 50% of gross domestic product is estimated to be knowledge-based, made the transition to knowledge economies decades ago. But Asia also has the potential to take the lead globally, according to the ADB.

Japan, South Korea, Singapore and Taiwan have high KEI rankings. Other Asian countries such as China and India have built pockets of knowledge-based growth, but have not yet translated this into a broader economic model.

Poorer countries such as Bangladesh, Myanmar and Laos have yet to really embark upon knowledge-based growth.

Sustainable growth

Emerging economies in Asia need to transition into knowledge economies to sustain economic development and growth at a time when their export-led manufacturing model is becoming less competitive globally.

At the same time they need to be “preparing effectively for the future challenges of an increasingly connected global economy”, the report says.

The region is well placed to do so.

“Asia has a youthful population and large middle-class market. Its strong position in information technology-enabled services and creative goods should allow it to quickly build its knowledge-based economy, benefitting both rich and poor,” said Bindu N Lohani, vice-president for knowledge management and sustainable development at the ADB.

But this also requires quality and accessible higher education, sound information infrastructure, strong research and development, persistent innovation and the right economic institutions, he said.

Government leadership is crucial to advance a knowledge-based economy, especially in the early stages of development, whereas at later stages the private sector assumes a stronger role, according to the report.

Countries not only need a highly educated workforce but also specialised economic, research and innovation institutions, strong intellectual property rights protection, an expanded finance sector, which could back innovation, and social impact funds “which could help spread the benefits of innovation to target population groups”.

HE – More to do

Developing Asia needs to increase education attainment levels as well as the proportion of scientists and engineers in the population, to close the gap with advanced economies. “Higher education and high-level skills at the tertiary level are crucial,” the report notes.

Despite considerable progress in increasing education access, many Asian economies lag behind advanced nations in higher education enrolment.

Except for the advanced economies of Hong Kong, South Korea and Taiwan, emerging Asian economies fall behind OECD countries in the education and skills sub-index of the KEI, with an average score just a little over half of the OECD average.

Mean years of schooling is lower in developing economies in Asia compared to OECD countries and tertiary enrolment levels are also much lower.

Developing economies are also struggling with poor quality of education and poor connection of education with labour markets and jobs.

“In addition to increasing enrolments, there is need to focus on improving the quality and relevance of education and skills development to counter the problems of skills-jobs mismatches and rising graduate unemployment,” the report notes.

“Greater emphasis on science and technological streams and on soft skills development at the secondary stage will help to build a tertiary education edifice that is of higher quality.”

World-class institutions

Innovation is the cornerstone of a knowledge-based economy, according to the report. Investment would include a “critical mass of world standard tertiary education” and the expansion of centres of research and development excellence, as well as innovative uses of IT in education.

In addition, “an educated and highly skilled workforce is critical” to a knowledge-based economy. “Ideas and technical expertise hold the key to the new global competitive challenge,” the report says.

To emerge as a global leader, Asia needs a “critical mass of world-standard tertiary education institutions”. This can be built from scratch, by upgrading existing institutions, by partnering with world-class universities, or a combination.

“Forging linkages with world-class universities will help developing Asia to jump-start research and development (R&D) programmes that are benchmarked to global standards and establish best practices in governance of tertiary education systems.

“A greater focus on science, technology, engineering and mathematical disciplines at all levels of education is needed to augment talent for innovation.”

The potential of tertiary education institutions and industry-university collaborations as R&D centres and commercial incubators of innovation and technology, has been under-exploited so far in Asia’s developing countries, the report adds.

It recommends an expansion of centres of excellence in research and development “to produce original and potentially groundbreaking research and form a joint physical community of scientists, technologists and industry experts”.

Talent development in centres of excellence can be allied to the priority economic sectors of economies.

Another main recommendation is to increase R&D spending and its efficient use. “This requires better systems for allocating public funds for R&D, particularly focusing on a few high-impact areas that will serve the economies well in terms of increasing their global competitiveness.”

The report concludes that countries in Asia are uniquely positioned to use the knowledge-based economy as a platform for sustainable growth and innovation “in ways that may well change the global competitiveness landscape of the future.”