The Role of Innovation in Development

Innovation is often seen as carried out by highly educated labour in R&D intensive companies with strong ties to leading centers of excellence in the scientific world. Seen from this angle innovation is a typical "first world" activity. There is, however, another way to look at innovation that goes significantly beyond this high-tech picture. In this, broader perspective, innovation - the attempt to try out new or improved products, processes or ways to do things - is an aspect of most if not all economic activities. In this sense, innovation may be as relevant in the developing part of the world as elsewhere. Section two discusses the existing theoretical and empirical literature on the subject. An important conclusion is that to be able to exploit technology to their own advantage, developing countries need to develop the necessary capabilities for doing so. The third section of the paper, therefore, discusses ways to identify and measure capabilities at the national level, while section four focuses on recent attempts to survey innovation activity in firms. The final section summarizes the main lessons.