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What happens when upper middle-income countries that are no longer poor—but not yet rich—try to move from copying technologies developed by rich countries to inventing their own?
That’s the question asked in a new Schar School of Policy and Government study published in the Science Direct journal Technological Forecasting and Social Change. The study was led by Professor Maurice Kugler and cowritten with Schar School PhD alum Muhammad Salar Khan and doctoral student Chad A. Smith.
For Smith, it was his debut peer-reviewed publication.
“I’m interested in how countries develop their capabilities for science, technology, innovation, and entrepreneurship and how those capabilities help them accelerate their economic growth and development,” said the Harrisonburg, Virginia, native.
Working on the study has deepened his academic experience.
“The mentorship I received throughout my doctoral training was instrumental in this publication,” Smith said. “Several Schar School faculty helped me master the economic complexity literature and quantitative methods that underpins the study. Once I became proficient, Professor Kugler invited me to collaborate on the project, giving me the opportunity to apply those tools in a meaningful research setting.”
The study asks if becoming good at innovation helps middle-income countries accelerate economic growth and catch up with the world’s advanced economies.
Using ideas from the World Bank and several economic theories, the authors created two new ways to measure innovation. One shows how diverse and sophisticated a country’s invention capabilities are. The other measures a hidden gap between how good a country is at inventing things and how good it is at actually making and selling them—basically, unrealized innovation potential.
The authors analyzed patent data and economic indicators from 67 countries over several decades. The results show that countries with more complex invention capabilities tend to be richer. More importantly, for upper middle-income countries, having unrealized innovation potential strongly predicts future growth. Even a modest increase in this hidden capability leads to faster economic growth.
The study also finds that many countries get stuck at this stage, unable to make the jump to innovation-driven growth—a phenomenon known as the “middle-income trap.”
The paper shows that moving from copying to innovating is a difficult step for countries in the upper middle-income range. The key takeaway for policymakers is that these countries need better alignment between innovation policy and industrial strategy if they want to break out of this trap and become high-income economies.
The study is available online at this webpage.