Innovations, growth and participation in advanced economies - a review of major concepts and findings

Abstract

Technical change is a major driving force for economic growth and development, thus technological change and innovations could be a powerful process that opens up opportunities to increase social welfare and benefits for societies. Whether opportunities turn into real benefits and allow for broad participation depends on a number of factors. In this contribution we focus on three questions. First, what are the drivers of and the gains from technological change? Second, is there broad participation in the gains from technological change? Third, what mechanisms generate asymmetric participation or even non-participation? Reviewing the literature, we obtain two sets of answers, one set for developed countries (DCs) and one for less developed countries (LDCs). For DCs, technology is still the driving force for aggregate progress. Innovations are driven by a combination of private and public R&D investments and the diffusion of innovations is spurred by innovative competition. Due to various reasons - such as technical bias, educational attainment, new firm concepts, globalization and outsourcing, disempowerment of labor unions, decreasing labor share in aggregate income, or agglomeration effects - we identify major differences in participation in gains across different groups. Further, technology that originated in DCs is transferred to LDCs. We identify the channels of technological transfer that allow LDCs to potentially participate in the benefits. Here, the development of the modern sector with links to international value chains plays a major role. However, global diffusion of technology and its gains are very diverse. Reasons for this diverse participation in gains include power structures in global value chains combined with an excess supply of labor and the malfunctioning of local governments and institutions in LDCs.