Catch-Up Innovation and Shared Prosperity

Abstract

This chapter provides an economic development perspective on the role of catch-up innovation for shared prosperity. Innovation happens when entrepreneurs commercialize new ideas through markets to improve business productivity and raise profits. In developing countries, most businesses operate quite far from the global “best practice” technological frontier. Innovation in these contexts should be defined to include not only frontier new-to-the-world innovation but also catch-up innovation, namely the adoption and commercialization of existing products and technologies that are new to the firm. These “imitation” catch-up activities are legitimately considered as innovations since their adoption involves adaptations to the local context. They typically involve lower risk to the firm than frontier innovations (Dutz, 2015). And catch-up possibilities are the main reason emerging economies grow faster on average than high-income ones. The chapter focuses on how catch-up innovations can affect the income and consumption opportunities of poor people, mainly through the linkages between innovation and jobs. The chapter also examines selected policy actions for boosting shared prosperity — promoting the income growth of the bottom 40 percent of people in each country — by helping lower-income people contribute to and benefit from catch-up innovation.