How can innovation improve social and economic performance of developing countries? Learn how these economies can adopt policies aimed at supporting broader development objectives.
As with any economy, innovation in developing economies arise both from the local creation of new technologies and the adaptation of foreign technologies.
Yet, developing economies’ ability to absorb or generate technological solutions to address their specific socio-economic needs depend on their local innovation ecosystems and how connected these are to global innovation networks.
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Developing countries are highly heterogeneous, with a large gap between fast-growing emerging economies and least developed countries.
In some developing economies, innovation ecosystem stakeholders may have access to varying levels of innovative capacity. These economies – usually those in the middle-income bracket – are able to leverage their scientific capacity, technological capital and skilled labor aiming to narrow the technological gap with the more advanced economies.
In several other cases, market and non-market participants may not have sufficient local innovative capacity to identify, assimilate and learn from new technologies developed elsewhere or to generate the innovations themselves. Low purchasing power may make it difficult to access global innovation to serve their needs. Basic infrastructure –such as roads, electricity or medical care – and important institutions, such as an effective financial sector, may be less present, rendering some foreign technologies less suitable. Innovation may then need to be low-skilled, generally small in scale and targeting specific communities or regions.
What is the role of technological transfer?
Adapting foreign technologies to the needs of developing-economy markets tends to be incremental, with limited improvements added to the original technology. But not all foreign technologies can be easily transposed to developing economies.
Innovations from highly innovative economies are conceived for economies with capital-intensive industries, available skilled labor, high quality infrastructure and consumers with higher purchasing power. Developing economies tend to have relatively abundant but less skilled labor, are segmented with diverse needs, have weak infrastructure, and their consumers have relatively low purchasing power.
These differences often make frontier technologies less appropriate for the needs of poorer economies. Even if appropriate for local needs, frontier innovation often is costly. Adapting frontier technologies to make them affordable requires high levels of technical knowledge.
While technologies from developing economies may be diffused to other developing economies, successful technology transfer depends on the needs and skills at the destination being similar to those of the source country.
How to innovate under constraints?
Local problems often require solutions that take account of local conditions. These conditions often include a lack of access to finance, insufficient energy, transport and telecommunications’ infrastructure and a scarcity of skilled labor, to name a few. Innovation in developing economies must also involve non-market participants, such as research institutions, government agencies and non-governmental organizations (NGOs) if it is to address local needs.
Since price is one of the main constraints, often the innovative efforts in developing economies are geared towards reducing costs, either through using cheaper inputs – such as local raw materials to substitute for the original ones – or stripping out features of the technology to leave just the bare necessity. Economists refer to these non-conventional innovations as frugal, jugaad or bottom-of-the-pyramidinnovations, as they are produced taking account of local needs and purchasing power.
Developing economies also often lack institutions to facilitate and support innovation, leaving such activities to the informal sector. But innovations generated within the informal sector may have limited scope to scale up.
These types of frugal or informal innovations are often not documented in scientific articles, technical bulletins or patents – making them extremely hard to reproduce and diffuse. They often escape the attention of innovation policymakers, as they are not captured well by the usual innovation indicators, such as R&D investment, skilled labor counts or the already mentioned scientific publications and patents. This is why such local innovations are often referred to as under-the-radar innovations.