The views expressed in this presentation are the views of the author and do not necessarily reflect the

views or policies of the Asian Development Bank Institute

(ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included
in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.

Comments on “What drives

innovation in Asia?”
The OECD-AMRO-ADB/ADBI-ERIA Asian Regional Roundtable

Banri Ito (Aoyama Gakuin University and RIETI)

13 February 2020
ADBI, Tokyo, Japan
General comments
• Well organized report
Careful review of theory and evidence
Covering a wide range of determinants for innovation
Evidence-based policymaking

• Policy recommendations are convincing

Human capital and reform of education system
Entrepreneur friendly system
IPR strategy
Capital markets
Agglomeration in city
2
Comments
1. Complementarities btw trade & innovation

2. “Two heads are better than one”

3. “Failure teaches success”

4. Backlash against globalization & innovation

5. “Data free flow with trust” for digital innovation in Asia

3
(1) Complementarities btw trade & Innovation
• “2.2.8 Firms that export are more productive. P.24”
• Consistent with “New” new trade theory (Melitz, 2003)
Only productive firms can pay fixed costs for exporting and enter export
market
Many empirical studies support complementarities btw export and R&D
(Yeaple 2005; Lileeva and Trefler 2010; Aw et al. 2007, 2011; Bustos 2011)
• Bustos (2011) identifies the causality from productivity (innovation) to
export using external shock (FTA)
Trade liberalization (Market size⬆)R&D investment ⬆Productivity
⬆Productive firm

FTA/EPAs accelerate innovation in the region

4
(2)“Two heads are better than one”
• Firms that employ “Open Innovation” strategy is more
productive and internationalized
• Asian economies have different national attributes (market
size, factor endowment) and development stages.
• If countries share technological knowledge and attributes
through GVCs, great innovation outcomes can be expected
Technology transfer (technology licensing, R&D
outsourcing) is indispensable for that.
We need institutional harmonization (IPR protection,
Contractibility)

5
Firms that employ both internal (own R&D investment) & external
R&D (technology purchase, R&D outsourcing) are more productive
and internationalized
80% 1.6

70% 1.4

60% 1.2

50% 1

40% 0.8

30% 0.6

20% 0.4

10% 0.2

0% 0
No R&D Internal R&D External R&D Int. & Ext. R&D

% of exporters TFP (right axis)
6
• Ito and Tanaka (2016) "External R&D, Productivity, and Export"
Technology transfer from Japan to Asia
Increasing but flat in recent years
Technology export from Japan (million JPY) 
2000000

1800000

1600000

1400000

1200000

1000000

800000

600000

400000

200000

0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

East Asia & Southeast Asia West Asia North America South America Europe Other area

7
Institutional harmonization (IPR protection,
Contractibility) in Asia is still halfway.
International Property Rights Index (IPRI) in Asia (2010‐2019)
9

IPRI score 2019 IPRI score 2010 8
 (3) “Failure teaches success”
• The report pointed out internal or external training is positively
related to innovation (Table 3.3, 3.4, Figure 3.1)
• Institutional or organizational factors within a firm may also be
important for generating “disruptive innovation”
• In 2019, Japan Productivity Center (JPC) surveyed managers in
Japanese companies for barriers to “disruptive innovation”
“It is said that Japanese companies are less likely to 
cause “disruptive innovation”. Do you think so?”

>300 EMPLOYEE (N=187) 81.3% 11.8% 7.0%

<300 EMPLOYEE (N=200) 68.0% 14.0% 18.0%

TOTAL 74.5% 12.9% 12.6%

9
Yes No Not sure
If Japanese companies are less likely to cause “disruptive innovation” for institutional reasons
within the company, what is the most likely reason?
46.4% There are many procedures and meetings, and decision making is slow.
40.1% Personnel evaluation system that makes it difficult for failed people to be accepted
36.3% Lack of diverse human resources
30.8% Difficulty in innovating just by business unit's judgment.
13.5% Excessive compliance
4.8% There are not many institutional factors inside the company
• JPC points out the following two points as recommendations for realizing a
large company that will cause innovation.
• Management creates a corporate culture that does not curtail on-site risk
challenges.
• Management creates a personnel evaluation system that does not make
failure a negative factor
Innovation friendly organizational factors will be crucial
10
 (4) Backlash against globalization & innovation
• Globalization & innovation cause winners and losers
Ex) Exporter and non-exporters, People who can and cannot
access the new technology, Agglomerated city and non-
agglomerated city

• Cutting-edge technologies (AI, IoT, robotics, big data) would further

widen the gap and may promote monopoly.
Along with promoting frontier innovation, innovation aimed at
reducing inequality and sustainable development is also important
Ex) “Innovation for SDGs” Keidanren (Japan Business Federation)

11
(5) “Data free flow with trust” for digital
innovation in Asia
• The rapid development of AI, combined with accumulation of Big
Data, is accelerating the expansion of business activities in many
countries around the globe.
• International rules to enable the free movement of data across are
essential for digital innovation
• “Osaka Truck” was launched on the occasion of the G20 Summit in
Osaka last June.
It is important to ensure the free movement of data within Asia, but
there are also concerns about tightening transfer regulations (data
localization) such as the Cyber Security Act (Internet Security Act)
12