Economic crisis has adverse impact on innovation globally

Economists have found a strong correlation between technological advance and economic development as well as between R&D and technological advance.

By ET Bureau | Updated: Sep 24, 2012, 07.10 AM IST

Economic crisis has adverse impact on innovation globally

Comparative performance of national science and innovation systems, 2011 Economists have found a strong correlation between technological advance and economic development, and a slightly weaker but still solid correlation between R&D and technological advance. It follows that investments in science and technology strongly influence long-term economic growth of a country. Which was why the Organisation of Economic Cooperation and Development (OECD) was worried last week after its study found that innovation declined in 2009 across most of its member countries, the only serious exception being South Korea. It recovered partially in 2010. On the other hand, innovation increased significantly in China and to a lesser extent, in India and Brazil. OECD does not expect all its member countries to recover innovation growth anytime soon.

CHINA

China has steadily increased its share of global R&D from 7 per cent in 2004 to 12 per cent in 2009, according to OECD. According to Battelle, the market research company (which puts China’s global R&D share in 2009 as 12 per cent), this share will rise to 14.2 per cent in 2012. China has now surpassed Japan to become the second biggest spender in R&D after the US.

INDIA

India’s investments in R&D has also been rising in the last five years, although more slowly than that of China. India’s investments in science and technology exploded after 2007 in relative terms. Its share of global R&D, according to Battelle, has risen from 2.6 per cent in 2010 to 2.9 per cent in 2012. However, its R&D spending as a percentage of GDP is still 0.8 per cent, compared to 1.6 per cent of China.

KOREA

Korea has been investing consistently on science and technology, and there is consensus -- like in China -- that such investments are necessary for growth. But Korean S&T is slightly different from that of other developed countries. Three-fourths of its R&D is performed by companies, but 88 per cent of this is in manufacturing, and 48 per cent of it in radio, TV and communication equipment.

Countries like Germany and northern Europe are getting back to normal levels, while Southern and Eastern Europe are far from recovering their innovation capabilities. In countries like the US, the UK, Japan and France the prospects are uncertain for both economic growth and innovation. While big companies have recovered well after the economic shocks, innovative entrepreneurship has not recovered yet. Increased government funding had compensated for lower private sector investment in 2009 but government funding for R&D has declined in the last two years. Since governments recognise the important of R&D, they are looking at new policies to put R&D back on track. Climate change and the need for sustainable technologies are creating new avenues for growth.