The application of knowledge is now recognized to be one of the key sources of growth in the global economy. The term Knowledge Economy (KE) has been coined to reflect this increased importance of knowledge. A knowledge economy is one where organizations and people acquire, create, disseminate, and use knowledge more effectively for greater economic and social development.

This ‘knowledge revolution’ manifests itself in many different ways: there are closer links between science and technology; innovation is more important for economic growth and competitiveness; there is increased importance of education and life-long learning; and more investment is undertaken in intangibles (R&D, software and education) which is even greater than investments in fixed capital. And of course there is the Information and Communication Technologies (ICT) explosion which brings worldwide interdependency and connectivity.

Increased importance of knowledge provides great potential for countries to strengthen their economic and social development by providing more efficient ways of producing goods and services and delivering them more effectively and at lower costs to a greater number of people. However, it also raises the danger of a growing ‘knowledge divide’ [rather than just a ‘digital divide’] between advanced countries, who are generating most of this knowledge, and developing countries, many of which are failing to tap the vast and growing stock of knowledge because of their limited awareness, poor economic incentive regimes, and weak institutions. Combined with trade policy liberalization, the knowledge revolution is leading to greater globalization and increased international competition, which is eroding the natural resource and low labor cost advantage of most developing countries.

To capitalize on the knowledge revolution to improve their competitiveness and welfare, developing countries need to build on their strengths and carefully plan appropriate investments in human capital, effective institutions, relevant technologies, and innovative and competitive enterprises. Countries such as Korea, Ireland, Malaysia, and Chileillustrate the rapid progress that can be made.

Framework for a Knowledge-based Economy

The following framework consisting of four pillars that help countries articulate strategies for their transition to a knowledge economy:

  • An economic and institutional regime that provides incentives for the efficient use of existing and new knowledge and the flourishing of entrepreneurship.
  • An educated and skilled population that can create, share, and use knowledge well.
  • An efficient innovation system of firms, research centers, universities, think tanks, consultants, and other organizations that can tap into the growing stock of global knowledge, assimilate and adapt it to local needs, and create new technology.
  • Information and Communication Technologies (ICT) that can facilitate the effective communication, dissemination, and processing of information.

Making effective use of knowledge in any country requires developing appropriate policies, institutions, investments, and coordination across the above four functional area.

The Skills & Innovation Policy (SIP) program includes five main product lines that are focused on clients’ transition to the knowledge economy, as well as assistance to organizations in client countries on knowledge management:

  1. Knowledge Economy Policy services for clients, including policy reports and policy consulting advice on various aspects of the knowledge economy. The program provides a spectrum of knowledge economy products (enhanced desk assessments, knowledge economy overview assessments, and full knowledge economy assessments) which allow us to meet the needs of different client countries.
  2. Knowledge Economy studies that are designed to bring together global learning and experience on the knowledge economy, such as on innovation systems.
  3. Learning events to build knowledge and skills and to facilitate exchange of experience and good/best practice on the knowledge economy.
  4. Knowledge products/tools, including the preparation of materials to support our learning events, websites, and the Knowledge Assessment Methodology (KAM).
  5. Knowledge Management  assistance to enhance the capacity of development-oriented organizations in the client countries to achieve greater impact through the application of knowledge management tools and practices.

The program has the potential to help all countries make the transition to a KE (not only medium to high income countries, but also low-income countries). The key issues and policy agenda will differ according to the needs and capabilities of each country. The program embarks on KE work in countries where:

  • It makes sense to pursue this agenda in a particular country – in other words, where an emphasis on developing a knowledge-based economy would offer the country additional growth potential and improvement in competitiveness, and where the country has a capacity to take the necessary steps to pursue this agenda;
  • There is strong demand from the client country and government is committed to the work;
  • There is interest from the Bank’s Country Team undertake such work; and
  • There are good interlocutors in the client country.

To date, the SIP program has undertaken innovative in-depth policy work customized to client needs in Argentina, Brazil, Chile, China, India, Korea, Mexico, Russia, Tanzania, and Turkey.