This post is a summary of two reports. The first with the title above was published in 2007 at http://www.oecd.org/science/inno/39374789.pdf. The second report was published at https://www.kansascityfed.org/publicat/sympos/1992/s92barro.pdf
Undoubtedly the capability to innovate and to bring innovation successfully to market will be a crucial determinant of the global competitiveness of nations over the coming decade. There is growing awareness among policymakers that innovative activity is the main driver of economic progress and well-being as well as a potential factor in meeting global challenges in domains such as the environment and health. In addition to the rapid advances in scientific discovery and in general-purpose technologies such as ICTs and biotech, the accelerating pace of innovation is being driven by globalisation. Government policies can support innovation by updating the regulatory framework within which innovative activity takes place. government can also play a more direct role in fostering innovation. public investment in science and basic research can play an important role in enabling further innovation. This lighthighs the importance of reforming the management and funding of public investment in science and research, as well as public support to innovative activity in the private sector. The latter calls for an appropriate mix of direct and indirect instruments such as tax credits, direct support and well-designed public-private partnership, support for innovative clusters and rigorous evaluation of such public support. Implementing reforms to foster innovation may prove difficult. Strong political leadership and efforts to develop a clear understanding by the various stakeholders of the problems and the solutions can all help to communicate the need for reform and facilitate acceptance. Much of the rise in living standards is due to innovation, this has been the case since the Industrial Revolution. Today, innovative performance is a crucial factor in determining competitiveness and national progress. Evidence suggest that innovative efforts is on the rise as a share of economic activity. But intellectual assets taken as a whole, a concept seeking to aggregate measures of human capital, R&D and capacity to conduct it, patent valuations as well as intangible assets such as brand value or firm-specific knowledge, are rapidly becoming the key to value creation through a number of channels. Improvements in skills composition of labour play an important role in productivity growth. Studies suggest that investment in R&D is associated with high rates of return. And investment in software have also contributed to businness performance and economic growth. The importance of innovation has been reinforced both by globalisation and by advances in ICTs, which have enabled new forms of competition and opened new markets for the creation and delivery of innovative products and service. Intellectual Property Rights (IPR) pose a perticularly important challenge. As knowledge has become an essential factor of growth and competitiveness for companies as for nations, its markets value has increased, hence reinforcing the value of protection for creators. Governments have reacted to these changes by strengthening the rights of IPR holders. In reaction to these changing conditions, and in view of ensuring a high return on their investment in creations, firms are increasingly applying for IPR. Innovation also relies heavily on the creation of basic knowledge, through both education and science. A well-performing and broadly accessible education system facilitates the adoption and difusion of innovation. The contribution of education and human capital accumulation to economic growth is well documented. Some of this occurs through science and innovation. Investment in the education and training of researchers and others highly skilled workers is a major factor in determining the contribution that scientific research can make to scientific progress. Creating, developing and diffusing new products and processes requires strong science and tech skills. There is an increasing emphasis on policy issues related to the availability of highly skilled labour. Education policy makers are paying attention to inovation outcomes, and there is encreasing emphasis to move towards a school environment which is less elitist, less compartmentalised between theorical and practical understanding. Public support for business innovation can be made more effective. The effectiveness if such support can often be improved. Governance of policies is also important as innovation often requires efforts from many ministries and government agencies, and from the national and sub-national levels. Coordinating policies is important to avoid duplication of efforts ans ensure a coherence of policies. Innovation does not need to go at the cost of employment performance. Several of the countries that have strongly emphasised innovation in recent years have also experienced strong employment growth, shpwing that these can go hand in hand. Indeed, several countries that observed strong employment growth over the last decade, such as Spain and Ireland, are now emphasising innovation as the scope for further employment-led growth is becoming more limited and duture growth will need to come from productivity growth, including innovation.
Many theoretical models of economic growth have emphasized the role of human capital in the form of educational attainment. Various theoretical models include human capital as a factor of production and assess the accumulation of human capital as an element of the growth process. Human capital is also important in models that allow for international capital mobility and in theories of the diffusion of technology. Extensions of the neoclassical growth model have distinguished the sector that produce goods and physical capital from an educational sector that produces new human capital. The assumption in these models is that the education sector is intensive in human capital, it takes human capital embodied in teachers to produce human capital in students. One finding stressed concerns imbalances between human and physical capital. A country with an abundance of human capital tends also to focus its investment on physical capital. The conclusion about imbalances between human and physical capital are reinforced if the accumulation of human capital involves adjustment costs that are much higher than those applicable to physical capital. Machines and buildings can be assembled quickly, but people can not be educated rapidly without encoutering a sharp falloff in the rate of return to investment. A high ratio of human to physical capital applies, as an example, after a war that destroy large amounts of physical capital, but which leaves human capital relatively intact. Japan and Germany after World war II are ilustrative cases.
