Accelerating Innovation and Digitalization in Asia to Boost Productivity (Departmental Papers)

This departmental paper examines productivity trends in Asia amid COVID-19 and structural economic shifts. Many advanced and emerging Asian countries experienced slowing productivity growth even as innovation efforts—measured by R&D spending and patent numbers—increased, revealing a disconnect between innovation investment and productivity outcomes. Asia has become a major innovation hub, accounting for more than half of global patents. However, this growth is concentrated in a few frontier countries that have driven increases in digital and computer-related patents through substantial R&D spending and large researcher populations. Within these countries, R&D has become concentrated among fewer firms, correlating with wide productivity dispersion. The paper identifies two pathways forward. For frontier Asian countries, policies should include R&D tax credits and grants, business-university collaboration, and lower trade barriers to support broader innovation. For developing countries farther from the technological frontier, priorities include improving digital infrastructure, building skilled labor forces, increasing openness to trade and foreign direct investment, and strengthening patent protection. These measures aim to reallocate resources to productive firms, encourage technology adoption, and support productivity growth through innovation diffusion.