High rates of growth have propelled countries in the region from low-income to middle-income, and even in a few cases, to high-income status.

Developing East Asia Countries Face Abundant Challenges In Sustaining Growth
Photo Credit: Nikkei
Countries in developing East Asia have undergone significant economic transformation, but the region now faces an array of challenges in sustaining growth East Asia’s economic success over the past 50 years has been transformative. 
High rates of growth have propelled countries in the region from low-income to middle-income, and even in a few cases, to high-income status.
An approach that has become known as the “East Asian development model”— a combination of policies that fostered outward-oriented, labor-intensive sectors growth; investments in basic human capital; and sound economic governance—has been instrumental in moving hundreds of millions of people out of poverty and into economic security.
Despite their past successes, the region’s middle-income countries now face an array of challenges as they strive to continue their economic progress: First, productivity growth has declined since the 2008–09 Global Financial Crisis. This, and rapid population aging in several countries, is putting pressure on the region’s growth prospects, narrowing the opportunities for reaping demographic dividends. Second, the slowing of global goods trade, uncertainty about the future of the global trading system, and rapid changes in technology are all challenging a key engine of growth in the region: export-oriented manufacturing. 
Third, the COVID-19 pandemic, together with ongoing climate change, are increasing economic vulnerability and highlighting a pressing need for new modes of production in the region.
These forces, alone and together, raise questions about whether the model that has driven the region’s economic success in the past can continue to deliver rapid growth and development in the future.
Innovation is increasingly important to future growth
Recent studies have highlighted the critical role that innovation must play in developing East Asia if the region’s countries are to maintain or increase productivity growth in a rapidly changing and highly uncertain global economic environment (Mason and Shetty 2019; World Bank and DRC 2019). 
Reinforcing the case for more innovation-led growth is a significant global literature showing strong links between innovation and productivity at the macro- and microeconomic levels.
Against this background, this report seeks to deepen policy makers’ understanding of the critical role for innovation in the future growth and development of developing East Asia.
To achieve this, the report examines the region’s key innovation challenges, assesses its state of innovation, and analyzes the main constraints firms face in effectively pursuing innovation. The report then examines the policies and institutions needed to enable greater innovation and lays out an agenda for action aimed at spurring innovation-led growth in the region.
The report emphasizes the importance for the region of effectively using technologies that are already available in highincome economies as a means of raising productivity and addressing economic and societal challenges. For this reason, the report adopts a broad definition of innovation that encompasses both innovation as “invention” of new products and processes at the knowledge frontier and as “diffusion and adoption” of existing technologies and practices that enable firms to undertake new and more effective modes ofproduction.