IF countries like the Philippines want to avoid the middle-income trap and become a knowledge-based economy, the Asian Development Bank (ADB) recommended that governments must increase their investments in information and communication technology, innovation, and research and development.
In a report titled “Innovative Asia: Advancing the Knowledge-Based Economy,” the ADB said the country’s Knowledge Economy Index (KEI) score remains below the average in the Asia and the Pacific region and the Organization for Economic Co-operation and Development (OECD) countries.
The Philippines’s KEI score was below four when the average score in the Asia and the Pacific region was 4.39. The OECD KEI score averaged 8.25, way above any score posted by countries in the Asia and the Pacific region.
“This shift to knowledge-based growth is critical since the region’s comparative advantages in labor and capital-intensive manufacturing are fading.
New technologies, like robotics, and increasing stress on resources like energy and water, are emerging as threats to Asia’s competitive edge.
A shift to innovation-based growth would help countries avoid the middle-income trap and also address rising income inequalities,” the ADB said.
The ADB said investing in higher education and training, innovation, information and communication technology (ICT), and improving economic institutions to transform and shift beyond middle-income levels is crucial for countries like the Philippines.
This is especially because the report stated that income inequality in the Philippines and Thailand have worsened based on the Gini coefficient, a standard measure of income inequality that ranges from 0 when everybody has identical incomes to 1 when all income goes to only one person.
Further, the report stated that graduate unemployment in countries, like Malaysia and the Philippines, as well as advanced economies such as the Republic of Korea remain high.
The ADB cited data from the 2012 Manpower Global Talent Mismatch survey, which revealed that 45 percent of employers surveyed in Asia reported difficulty in filling positions due to a lack of suitable talent in their markets, compared to a global average of 34 percent.
In the Philippines, the Employers Confederation of the Philippines noted in a recent forum that the lack of analytical skills makes some College graduates difficult to employ.
However, the ADB said Asian countries like the Philippines have a unique opportunity to transform themselves and lead the global knowledge-based economy of the future.
“Asia has a youthful population and large middle-class market. Its strong position in information technology-enabled services and creative goods should allow it to quickly build its knowledge-based economy, benefiting both rich and poor,” ADB Vice-President for Knowledge Management and Sustainable Development Bindu N. Lohani said.
The ADB said the Philippines and India are leading the way in offering Information technology-enabled services (ITeS). This includes knowledge-process outsourcing and legal process outsourcing.
Data showed that India’s share of global ITeS revenues was at 40 percent, while the Philippines was at 15 percent.
The share in global ITeS revenues of the Philippines may have grown to $16 billion in 2013, from $100 million in 2001.
Further, the ADB said that based on AT Kearney’s services location index for 2011, seven of the top 10 locations for outsourcing global services were in Asia. These are the People’s Republic of China, India, Indonesia, Malaysia, the Philippines, Thailand and Vietnam.
“Innovation in service industries, such as medical diagnostics, architectural design, and business accounting holds promise for Asia. Targeting new products and services at Asia’s poorer, more price-sensitive citizens—so called frugal innovation—is also an opportunity,” the ADB said.
“Knowledge economies use ICT, innovation and research, and higher education and specialized skills to create, disseminate, and apply knowledge for growth. Currently, developing Asia ranks well below the OECD average in the World Bank’s Knowledge Economy Index,” it added.
The ADB said advanced economies of Asia, such as Japan; the Republic of Korea; Singapore; and Taipei, China have successfully shifted from agriculture to manufacturing to knowledge-based industries.
Others, such as the PRC and India, have built pockets of knowledge-based growth, but have not yet translated this into a broader economic model.
However, countries, like Bangladesh, Myanmar, and Lao PDR have yet to really embark upon knowledge-based growth.