In the early stages, industrial development needs basic human capital; the period needed to absorb simple industrial technologies is short and needs little protection or external support. At this stage, relatively non-selective educational interventions may be appropriate. As development proceeds, more difficult technologies are used and the need for more sophisticated and specialised training grows. We need to aware that technological knowledge is not shared equally among firms, nor is it easily imitated by or transferred across firms. Thus, simply to gain mastery of a new technology requires skills, effort and investment by the receiving firm, and the extent of mastery achieved is uncertain and necessarily varies by firm according to these inputs.
Scale economies and vintage differences in capital goods explain part of this asymmetry, but they “are also the different innovative capabilities, that is, different degrees of technology accumulation and different efficiencies in the innovative search process”. Once firm-level technological change is understood as a continuous process to absorb or create technical knowledge, determined partly by external inputs and partly by past accumulation of skills and knowledge, it is evident that “innovation” can be defined much more broadly to cover all types of search and improvement effort. Innovation is a completely distinct activity from gaining mastery of technology or adapting to different conditions. It is an investment that unrelated to production.
In the long run, standards of living can be largely enhanced by technological innovation. Technological breakthroughs have been at the basis of many of the productivity gains that our economies have historically experienced. These range from the industrial revolution in the 18th century and the invention of the steam engine and the generation of electricity to the more recent digital revolution. The latter is not only transforming the way things are being done, but also opening a wider range of new possibilities in terms of products and services. Innovation is particularly important for economies as they approach the frontiers of knowledge, and the possibility of generating more value by merely integrating and adapting exogenous technologies tends to disappear.
Generally, industrialization means a society or country (or world) transforms the structure of production, in which the industrial sectors typically grow more rapidly than agriculture. Associated with the rise of industry are change in the composition of demand, international trade, and the occupation of the labour force. These changes in the use of economic resources are influenced in various ways by government policies and constitute the core of a strategy of development. Thus, growth and development of large urban centres as well as suburbs is available besides outgrowth of capitalism.
The tendency for growth to accelerate in the transitional group of industrializing countries can be attributed to several factors such as a rise in the rate of accumulation of physical capital and skills, a shift of labour and capital into sectors where they can be used more efficiently. Besides, it enables diversification of the economic structure of the semi-industrial countries, which makes them less vulnerable to changes in terms of trade or shifts in demand.
Extensive and efficient infrastructure is critical for ensuring the sustainable industrialization to determine ideal location of economic activity and the kinds of sectors that can develop within a country. Well-developed infrastructure reduces the effect of distance between regions, integrating the national market and connecting it at low cost to markets in other countries and regions. In addition, the quality and extensiveness of infrastructure networks significantly impact economic growth and reduce income inequalities and poverty in different forms. A well-developed transport and communications infrastructure network is a prerequisite for the access of less-developed communities to core economic activities and services.
Effective modes of transport—including quality roads, railroads, ports, and air transport—enable entrepreneurs to get their goods and services to market in a secure manner and facilitate the movement of workers to the most suitable jobs. Economies also depend on electricity supplies that are free from interruptions and shortages so that businesses and factories can work unimpeded. Finally, a solid and extensive telecommunications network allows for a rapid and free flow of information, which increases overall economic efficiency by helping to ensure that businesses can communicate and decisions are made by economic actors taking into account all available relevant information.
Although less-advanced countries can still improve their productivity by adopting existing technologies or making incremental improvements in other areas, for those that have reached the innovation stage of development this is no longer sufficient for increasing productivity. Firms in these countries must design and develop cutting-edge products and processes to maintain a competitive edge and move toward even higher value-added activities. This progression requires an environment that is conducive to innovative activity and supported by both the public and the private sectors. In particular, it means sufficient investment in research and development (R&D), especially by the private sector; the presence of high-quality scientific research institutions that can generate the basic knowledge needed to build the new technologies; extensive collaboration in research and technological developments between universities and industry; and the protection of intellectual property, in addition to high levels of competition and access to venture capital and financing.
In light of the recent sluggish recovery and rising fiscal pressures faced by advanced economies, it is important that public and private sectors resist pressures to cut back on the R&D spending that will be so critical for sustainable growth into the future.