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Journal Articles
AI and Trade: Why Europe Cannot Afford to Lag on Adoption
EconPol Forum, 27, 15-20.
Our analysis shows that countries can benefit from foreign AI progress through cheaper imports, but without sufficient domestic adoption, they risk losing competitiveness in AI-exposed sectors.
Artificial intelligence (AI), and generative AI in particular, is poised to transform productivity across a broad range of activities, with the strongest effects concentrated in knowledge-intensive services such as finance, professional services, and ICT. Its economic impact will nevertheless depend on how quickly countries adopt and integrate it into their economies. Evidence points to substantial cross-country differences in adoption, particularly within Europe. Yet AI is not only a domestic transformation; it is also a productivity shock transmitted through international trade. Productivity gains abroad lower import prices and reshape competitiveness across countries and sectors. Our analysis shows that these forces interact: countries can benefit from foreign AI progress through cheaper imports, but without sufficient domestic adoption, they risk losing competitiveness in AI-exposed sectors. The global diffusion of AI therefore makes domestic adoption capacity and openness to trade complementary determinants of future growth.
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Working Papers
Japan’s Innovation Challenge: Escaping the Middle-Technology Trap
Japan remains one of the world’s most technologically sophisticated economies, yet its labor productivity has been stagnant for more than two decades. This paper investigates the apparent contradiction between Japan’s high R&D intensity and its weak productivity performance by examining the allocation, composition, and effectiveness of innovation across industries.
Japan remains one of the world’s most technologically sophisticated economies, yet its labor productivity has been stagnant for more than two decades. This paper investigates the apparent contradiction between Japan’s high R&D intensity and its weak productivity performance by examining the allocation, composition, and effectiveness of innovation across industries. Using industry-level data from the OECD, patent-level data linked across technology and industry classifications, and a set of nine technological taxonomies, we document that Japan disproportionately concentrates R&D in mid-technology manufacturing sectors—such as motor vehicles, electrical equipment, and chemicals—that generate relatively low productivity spillovers. High-technology sectors, including ICT, pharmaceuticals, scientific R&D, and advanced digital services, receive a significantly smaller share of investment and exhibit much higher productivity contributions in other countries. We further show that Japan’s indirect, tax-based system of R&D support reinforces this equilibrium by favoring large incumbents and under-supporting SMEs. We conclude by assessing the potential of Japan’s new 17-sector strategy to reorient the innovation system toward frontier technologies. -
Working Papers
The Cube: A Lawful, Incremental Framework for Using Public Procurement to Pull Innovation
Governments already spend large sums to promote innovation through grants, tax credits, loans, equity instruments, incubators, prizes, and advisory programs. Yet public procurement is vastly larger than conventional innovation-policy budgets. […]Governments already spend large sums to promote innovation through grants, tax credits, loans, equity instruments, incubators, prizes, and advisory programs. Yet public procurement is vastly larger than conventional innovation-policy budgets. In OECD economies, procurement is roughly 13 percent of GDP, while direct support and tax relief for business R&D together are only a fraction of one percent of GDP. This asymmetry matters. Even a very small innovation-oriented tilt in procurement can represent a material increase in the effective scale of innovation policy.
Yet procurement systems are rarely used this way. Most public procurement organizations are designed to secure timely delivery, preserve integrity, ensure equal treatment of suppliers, and obtain value for money. They are not designed to explore technological uncertainty, nurture early markets, or orchestrate experimentation with new solutions. Procurement officers are typically judged on compliance, continuity of service, and avoidance of visible failure. Under those incentives, the safe equilibrium is predictable: detailed specifications, strong threshold requirements, large established suppliers, price-dominant competitions, and risk transfer to vendors wherever possible.
This report argues that governments do not need to choose between lawful procurement and innovation policy. They can make procurement more innovation-friendly without abandoning core procurement principles. The relevant question is not whether procurement law should be suspended in the name of innovation. The relevant question is how familiar and lawful procurement tools can be reframed so that public buyers learn about technological possibilities, reduce uncertainty, validate solutions, and scale what works.
This is the purpose of The Cube.
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Reports
Innovation Capabilities Outlook 2026
Knowledge is expanding globally, yet most countries struggle to harness this growth effectively. Global innovation remains strikingly concentrated: a small number of leading economies account for the vast majority of […]Knowledge is expanding globally, yet most countries struggle to harness this growth effectively. Global innovation remains strikingly concentrated: a small number of leading economies account for the vast majority of scientific publications, patents, trademarks, and advanced exports, whereas most contribute less than 1 percent to any innovation dimension. Success does not require a big push in all fields, but instead lies in strategically diversifying into complex skills while at the same time maintaining intensity in high-value areas – a balancing act that only the most sophisticated innovation ecosystems have mastered.
Mapping the global innovation landscape
The Innovation Capabilities Outlook (ICO) 2026 analyzes 2,508 innovation capabilities across four dimensions – science, technology, entrepreneurship, and production – using comprehensive datasets spanning 2001–2023. The analysis reveals that innovation emergence depends critically on connections between these four dimensions, with the most sophisticated capabilities emerging only in highly diversified ecosystems able to support complex, interdependent knowledge networks.A tale of two innovation worlds
Global innovation output has expanded dramatically, yet this growth remains highly uneven and concentrated in no more than 30 percent of the world’s economies. Asian economies – led by China, India and Viet Nam – have mastered sophisticated capability development strategies, consistently achieving both smart diversification (gaining breadth and complexity simultaneously) and smart capability management (intensifying focus on high-value skills while protecting them with complementary knowledge). In contrast, many established and emerging economies struggle with this dual challenge: 46 percent of ecosystems have not meaningfully diversified, and complexity gains remain elusive for 70 percent of economies.Strategic opportunities
The ICO 2026 identifies substantial untapped potential – only 10 percent of economies fulfill their technological potential. Ecosystems collectively underperform by 339,000 technological innovations annually. Regional patterns reveal distinct strategic pathways: Europe possesses strong foundations, but struggles with technological translation; Asia shows balanced capabilities, but faces entrepreneurial commercialization challenges; and Africa should focus on foundational capability building while gradually targeting more complex activities.Policy implications
Innovation policy cannot rely on one-size-fits-all approaches. Success requires tailoring strategies to regional development levels, existing capability portfolios, and institutional contexts. Countries that align innovation investments with these evidence-based insights can break traditional development constraints and accelerate a transition toward knowledge-based competitiveness. The systematic nature both of diversification constraints and untapped potential suggests that targeted, level-appropriate interventions yield the highest probability of success.The Innovation Capabilities Outlook 2026 was developed through a partnership between WIPO and Harvard University’s Growth Lab (HGL), under the general direction of Daren Tang (Director General) and Marco Alemán (Assistant Director General). The report was supervised by Carsten Fink (Chief Economist) and Ricardo Hausmann (founder and Director of HGL), prepared by a team led by Julio Raffo (Head of Innovation Economy Section, WIPO) and Muhammed A. Yildirim (Director of Academic Research, HGL). The team included Christian Chacua, Matte Hartog, Shreyas Gadgin Matha, and Federico Moscatelli.
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Journal Articles
Inventing modern invention: The professionalization of technological progress in the US
Over the course of the mid-19th and early 20th century, the US transformed from an agricultural economy to the frontier in technology. To study this transition, we digitize half a […]
Over the course of the mid-19th and early 20th century, the US transformed from an agricultural economy to the frontier in technology. To study this transition, we digitize half a million pages of patent yearbooks that describe inventors, organizations and technologies on over 1.6M patents. We combine this with demographic information from US census records and information on corporate research from large-scale repeated surveys of industrial research labs. Our data reveal that in the early 1920s a new system of innovation — based on teamwork and engineers — started to rapidly replace the existing craftsmanship-based invention that had dominated innovation in the 19th century. We argue that this new system relied on an organizational innovation: industrial research labs. These labs supported high-skill teamwork, replacing the collaborations within families with professional ties in firms and industrial research labs. The systemic shift in innovation had far-reaching consequences: it changed the division of labor in invention, led to an explosion of novelty and teamwork, and reshaped the geography of innovation in the US.
For a deeper dive into the research and visuals, explore this analysis by the Complexity Science Hub.
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Working Papers
Global Trends in Innovation Patterns: A Complexity Approach
Technological know-how in a country shapes its growth potential and competitiveness. Scientific publications, patents, and international trade data offer complementary insights into how ideas from science, technology, and production evolve, […]Technological know-how in a country shapes its growth potential and competitiveness. Scientific publications, patents, and international trade data offer complementary insights into how ideas from science, technology, and production evolve, combine, and are transformed into capabilities. Analyzing their trajectories enables a more comprehensive and multifaceted understanding of the whole innovation process, from generating ideas to internationally commercializing products. We analyze the production patterns in these three domains, documenting the differences between advanced and emerging market economies. We find that future income, patenting, and publishing growth correlate with the economic complexity indices calculated from these domains. Capabilities embedded in the country also shape future diversification opportunities and make the innovation process path dependent. Lastly, we also show that diversification opportunities can be inferred across innovation domains.
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Working Papers
Innovation Policies Under Economic Complexity
Recent geopolitical challenges have revived the implementation of industrial and innovation policies. Ongoing discussions focus on supporting cutting-edge industries and strategic technologies but ignore the impact on economic growth. In this paper, researchers explain why effective innovation policies should be place-based and multidimensional, leveraging countries’ existing capabilities and addressing countries’ current problems.
Recent geopolitical challenges have revived the implementation of industrial and innovation policies. Ongoing discussions focus on supporting cutting-edge industries and strategic technologies but hardly pay attention to their impact on economic growth. In light of this, we discuss the design of innovation policies to address current development challenges while considering the complex nature of productive activities. Our approach conceives economic development and technological progress as a process of accumulation and diversification of knowledge. This process is limited by the tacit nature of knowledge and by countries’ binding constraints to growth. Consequently, effective innovation policies should be place-based and multidimensional, leveraging countries’ existing capabilities and addressing countries’ current problems. This contrasts policies that lead to economic efficiencies, such as copying other countries’ solutions to problems that countries do not currently have.
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Working Papers
Inventing Modern Invention: The Professionalization of Technological Progress in the US
Between the mid-19th and mid-20th centuries, the US transformed from an agricultural economy to the frontier in science, technology, and industry. We study how the US transitioned from traditional craftsmanship-based […]Between the mid-19th and mid-20th centuries, the US transformed from an agricultural economy to the frontier in science, technology, and industry. We study how the US transitioned from traditional craftsmanship-based to today’s science-based innovation. To do so, we digitize half a million pages of patent yearbooks that describe inventors, organizations, and technologies on over 1.6M patents and add demographic information from US census records and information on corporate research activities from large-scale repeated surveys on industrial research labs. Starting in 1920, the 19th-century craftsmanship-based invention was, within just 20 years, overtaken by a rapidly emerging new system based on teamwork and a new specialist class of inventors, engineers. This new system relied on a social innovation: industrial research labs. These labs supported high-skill teamwork, replacing the collaborations within families with professional ties in firms and industrial research labs. This shift had wide-ranging consequences. It not only altered the division of labor in invention, but also reshaped the geography of innovation, reestablishing large cities as epicenters of technological progress and introduced new barriers to patenting for women and foreign-born inventors that have persisted into the 21st century.
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Working Papers
Scientific and Technical Innovation in the UAE: A Capability-based Approach
The success or failure of the United Arab Emirates’ (UAE) mid- and long-term growth strategy will, in large part, be determined by innovation. The country aims to continue transitioning from […]The success or failure of the United Arab Emirates’ (UAE) mid- and long-term growth strategy will, in large part, be determined by innovation. The country aims to continue transitioning from its past focus on oil and gas, energy-intensive products, and re-exporting services to a future economic model increasingly relying on high-value, knowledge-intensive goods and services. A successful transition will necessitate importing and adapting frontier foreign innovation, but also creating a world-class innovation ecosystem at home.
Part of this effort will entail developing further the country’s Research and Development (R&D) capabilities. While significant catch-up is already visible, much remains to be done to bring the UAE’s R&D output in line with the ambitions assigned by its leadership. The production of scientific publications and patents has been rapidly increasing over the past few years. However, the current level of scientific publications and international patenting activity remains below that of aspirational peers, such as Singapore and Norway, but also fellow Gulf Cooperation Council (GCC) countries, such as Qatar and Saudi Arabia.
One of the reasons may be simple: there are not enough researchers in the UAE. The proportion of researchers in the UAE’s workforce is below what is expected for such an advanced economy. While the UAE has been successful at attracting foreign students and skilled workers, including in STEM fields which underpin R&D activities, this has not translated into a higher density of researchers in the labor force. Determining whether that results from low current demand for R&D skills due to the country’s current economic structure or from difficulties in producing or attracting R&D talent is difficult, although both likely contribute to the issue.
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Journal Articles
Macroeconomic Rationales for Public Investments in Science
Economic Inquiry, 59
What is the economic rationale for investing in science? Based on an open economy model of creative destruction, we characterize four key factors of optimal investment in basic research: the […]
What is the economic rationale for investing in science? Based on an open economy model of creative destruction, we characterize four key factors of optimal investment in basic research: the stage of economic development, the strength of the manufacturing base, the degree of openness, and the share of foreign‐owned firms. For each of these factors, we analyze its bearings on optimal basic research investment. We then show that the predicted effects are consistent with patterns observed in the data and discuss how the factor‐based approach might inform basic research policies.