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Geography of Growth
These concerns are motivating a reexamination in industrializing economies of development strategies reliant on processing and assemblytype industries that generate relatively little domestic value added. The viability of investment and export-led growth is being questioned, and countries with trade surpluses are looking for ways to increase the share of domestic consumption in final demand and lessen the reliance on investment as the primary driver of growth. This effort has focused increasing attention on measures to raise the contribution of total factor productivity (TFP) so as to compensate partially or wholly for a decline in investment. If TFP is to displace other sources of growth, policy makers are searching for a combination of factors that will lead to steadily increasing productivity of industry and services (Mokyr 1999). Productivity is a function of the efficient allocation and use of resources, technological capabilities, and innovation across the full spectrum of economic activities. To maximize gains in productivity, industrializing countries will need to address four priorities: • Products and services that will be in growing demand and subject to technological change • A competitive business environment and a financial system that, in concert, lower the barriers to the entry and exit of firms • Incentives for research and development (R&D) with the intention of building world-class innovation capabilities in areas with the greatest long-term commercial potential • The quality of the scientific and technical workforce and the steady accumulation of intangible factors in business and institutions so as to raise efficiency, promote entrepreneurship, increase the returns from research, and encourage profitable innovation. With industrial development of a modern economy almost wholly concentrated in cities, productivity gains accruing from technological progress and from innovation will be spearheaded by urban centers. The experience of advanced countries suggests that a country has only a few such centers of innovation or “smart cities.” Hence, the viability of a “productivity-led” strategy in an industrializing context will rest on the effectiveness of policies—national and local—to groom one or a small number of smart cities that not only are technologically dynamic and innovative but also realize the industrial scale needed to contribute substantially to the overall growth rate of the national economy. This chapter profiles smart cities and discusses policies that can contribute to their flowering and growth. Smart cities are not called into