ASSESSING THE DOUBLE-EDGED SWORD OF USING IMITATION AS A STEPPING STONE TO INNOVATION: A CASE OF MALAYSIA’S K-ECONOMY PUZZLE

King Yoong Lim

The Singapore Economic Review (SER), 2020, vol. 65, issue 01, 131-159

Abstract: Policy prescription for middle-income economies struggling to achieve innovation-driven growth has often been rapid promotion of skills-driven industrial transformation. However, Malaysia, an upper middle-income economy aspiring to achieve innovation-led growth, presents a near decade of K-Economy Growth Puzzle in the 2000s, when its aggressive skills-driven transformation initiatives had somehow resulted in decline to a lower output growth path despite successful expansion in skilled labor and innovation production. We present a continuous time growth model with industrial transformation based on an existing model advocating rapid skills transformation. By solving the model as a two-point boundary value problem, coupled with country-specific calibration strategies, vastly different results are obtained for this middle-income economy with fixed, imitation-heavy production structure. There may be a double-edged sword to using imitation as stepping stone to innovation, which then requires a much different industrial transformation approach. By examining transformation with different labor market configurations in a stylized manner using numerical experiments, we find that a delicate reordering of labor incentives would have been enough to help Malaysia navigating through the output growth–skills transformation trade-off.

Keywords: Growth puzzle; imitation; industrial transformation; human capital (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1142/S0217590817460018

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