The new geography of global innovation

- The new geography of global innovation "While the United States and Japan remain leaders in innovation, increased competition from growth markets, notably China, suggests a changing landscape. Research and development spending in Asia surpassed EU levels in 2005, and is likely to overtake US levels in the next five years, thanks primarily to striking growth in R&D investment in China. Measures of R&D intensity, or R&D investment as a share of GDP, allow for cross-country comparisons of commitment to R&D. R&D intensity has remained flat across G7 markets during the last decade at 2.1%. In China it has impressively doubled as a share of GDP since 1999, reaching 1.5%, which remains low by international standards. R&D investment is driven largely by the corporate sector, which finances more than two-thirds of total R&D spending in many countries. Companies in a range of industries, from pharmaceuticals to technology hardware, have exposure to new hubs of global innovation."
- Pipeline concerns and the role of human capital "The new geography of global innovation is critically dependent upon higher education in science and engineering (S&E) fields. Student interest in S&E is low in G7 countries, suggesting that these markets are likely to have difficulty replacing an aging cohort of native-born scientists and engineers. Reliance on foreign-born skilled labor is set to rise further as the world’s S&E skill base shifts toward Asia, notably China, where S&E fields represent 40% of all new university degrees awarded (more than two and a half times US levels)."
- New geography demands a policy response "Innovation-led productivity growth in the G7 will increasingly require public policies which attract and retain skilled foreign students and workers. In the short term, a more flexible and talent-friendly immigration regime can help developed economies and companies to benefit from the globalization of S&E skills. Longer-term investments in R&D and science education can further enable G7 countries to remain competitive by rebuilding student interest in S&E fields and by expanding the domestic supply of skilled S&E labor."

GoldmanSachs Global Markets Institute 20100920

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