The FINANCIAL — Innovation plays a key role in driving forward reforms and supporting long-term economic growth. But how to boost it in emerging economies? What can actors such as policy makers, the financial sector and firms actually do to boost productivity via innovation?
This was the topic discussed at the panel ‘Adopt, Adapt, Advance: Innovating for the Future’ at the EBRD’s Annual Meeting in Tbilisi, Georgia.
The evidence from the EBRD’s 2014 Transition Report Innovation in Transition, cited by the EBRD’s Director of Research Ralph de Haas, suggests that exporting companies are more productive than non-exporters, because they have to adapt to international standards and compete with firms globally.
Firms integrated into global value chains and blessed with a highly skilled work force are also more successful. Access to credit is another vital factor in ensuring firms innovate, according to EBRD.
Ironically, innovation has the highest impact on low-tech firms but is usually pursued by hi-tech sectors, he pointed out, which means small firms often miss out on the low hanging fruit of basic innovation. Improved management is another factor that makes the most of a difference in less advanced economies.
“There is no one recipe for economic growth, but there are some common factors,” Beata Javorcik, Professor of Economics at the University of Oxford, stressed. The good news is that the least advanced countries do not have to reinvent the wheel but catch up on sustainable growth by copying from more advanced economies.
However, the senior economist at innovation growth lab Nesta, Albert Bravo-Biosca, advises firms and policy makers to be careful about adopting any innovation plan without testing.
He recommends trying out different innovation designs, more efficient solutions and putting into place a system to see whether they work – for example, through randomised control trials.
Professor Javorcik also identified foreign direct investments (FDI) as a key vehicle for transfer of knowledge and innovation drive. Multinational firms such as Ford spend more on research and development than the governments of Spain or Switzerland.
Not surprisingly, FDI recipients grow much faster and knowledge spill-over can have a great impact in emerging markets.
George Chirakadze, President of UGT and member of the Business Association of Georgia, agrees on the crucial importance of FDI for the transfer of innovation and technology. But in transition economies such as Georgia, the challenges can have deeper roots, he warned.
The lack of local workforce with high level skills is one of the reasons FDI is riskier and less attractive. He identified improved education as a priority for policy makers who wish to see their countries’ economies thrive.
Speaking from the point of view of financial institutions, Hakan Aygen, Executive Vice President, Corporate Finance and Economic Research, TSKB, defined innovation as a lifestyle that requires constant drive. He advised that firms need a long-term vision and a serious business plan, which can be built with the support of expert advisers, to secure more access to finance and invest in innovation.
The role of IFIs such as the EBRD, in providing both financing and knowledge transfer remains crucial to overcome obstacles to innovation in transition countries.
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