Harnessing Research & Development for National Economic Growth: Lessons from Global Experiences and the Ethiopian Context

Continuous investment in research and development (R&D) has become a fundamental catalyst for sustained economic growth, structural change, and resilience. This article explores the historical and theoretical foundations of R&D’s significance in development, examines recent global patterns, and highlights Ethiopia’s present situation. This article provides a general overview of the topic, while more detailed issues will be addressed in upcoming articles.

Why R&D matters?

As economies evolve, they increasingly rely on knowledge. In today’s world, success is not just about infrastructure like roads and factories; it hinges on innovation, skill development, and the ability to transform scientific breakthroughs into marketable products. Nations that establish robust R&D frameworks, including universities, research centers, companies, and funding systems, gain enduring competitive edges in high-value sectors, boost efficiency, and enhance their ability to withstand economic disruptions. Recent statistics indicate that global R&D investment has hit unprecedented levels, predominantly concentrated in a handful of countries, which amplifies their technological dominance and trade benefits. Approximately 10 nations are responsible for 80% of this expenditure¹

Historical background: brief theory and evolution

Classical growth theory treated technology as an exogenous factor. It views technology as an important driver of economic growth, particularly through its positive effects on productivity and the division of labour, leading to increased output and profits. However, according to this theory, the impact was considered temporary. As populations grew, the increased output would eventually be diluted, leading to diminishing returns, lower profits, and potentially a Malthusian trap. Technology was frequently viewed as an external force and sometimes likened to “manna from heaven”, whose early advantages were eventually limited by resource constraints and diminishing investment opportunities.

The Malthusian trap is an idea proposed by the economist Thomas Robert Malthus² (late 18^thcentury). It describes a situation where population growth outpaces food production, which leads to scarcity, famine, disease, and poverty, resulting in a reduction in the population until it returns to a level sustainable by available resources.

The Neoclassical Growth Theory (Solow-Swan Model), which was proposed during the 1950s, assumes long-run economic growth depends on capital accumulation, labour, and technology. However, this theory considers technology to be an exogenous factor (comes from outside the model). Without technological progress, it is assumed that economic growth would ultimately come to a halt due to diminishing returns on capital. However, the model does not explain where technology comes from. The latter theory (1980s-1990s) proposed by Romer and Lucas suggests that technology and innovation are generated endogenously within the economy and considers technology as a centre for sustained growth. Romer emphasised knowledge, R&D, and ideas as non-rival goods that generate increasing returns, while Lucas focused on human capital and learning-by-doing. According to this model, investment in education, R&D, and institutions that encourage innovation can sustain growth indefinitely. Recent models of growth (creative destruction) focus on innovation and entrepreneurship as drivers of growth. According to this model, new technologies replace old ones (creative destruction), and competition drives firms to innovate to survive.

From the recent highlighted theories and models, it becomes evident that technology plays a vital role in driving economic growth. By investing in research and development, building human capital, knowledge spillovers, and learning-by-doing, economies can consistently boost productivity and maintain long-term growth. This viewpoint underscores the significance of policy, institutions, and incentives in promoting innovation, as they directly influence an economy’s ability to generate technological advancements from within.

Recent global trends

According to a recent UNESCO report¹, global gross domestic expenditure on R&D recently reached nearly US$1.7 trillion. According to the World Bank report³, the global research and development expenditure has recently been increasing and reached 2.67% of GDP[1] in 2022. However, the share of this expenditure is concentrated among ten countries that account for about 80% of spending. Among these countries, in 2023, Israel (6.3%), South Korea (5.0%), Sweden (3.9%), United States (3.4%) and Japan (3.4%) are at the top five in the list in allocation of their portion of GDP for R&D.

International bodies such as the Organisation for Economic Co-operation and Development (OECD), along with various studies, have emphasized that investment in research and development (R&D) plays a crucial role in boosting a nation’s GDP and improving the living standards of its citizens. In recent decades, the landscape of R&D funding has changed: Asia has experienced rapid growth in its R&D expenditures, now representing a significant portion of global increases, whereas other leading economies have exhibited slower growth or relatively stable levels of investment. Figure 1 shows the Gross domestic spending on R&D % of GDP in 1981 versus 2023.

(a)

(b)

Figure 1. Gross domestic spending on R&D % of GDP of countries in 1981 and 2023. (a)1981 and (b) 2023.

Source OECD (https://www.oecd.org/en/data/indicators/gross-domestic-spending-on-r-d.html).

Country case studies

This article highlights how Asian countries, such as South Korea, China, India, and others, have managed to leapfrog in research and innovation, outlining key strategies and success stories that have shaped their progress.

- Strong, targeted government support for industry, such as Chaebols (Samsung, LG, Hyundai).
- Focus on education & talent through strong STEM education and global university partnerships.
- Large public and business R&D investments. Some literature shows South Korea invests over 100 billion USD in R&D, where nearly 80% is contributed by the private sector.
- University-industry-government partnership: South Korea’s university-industry–government linkage is one of the cornerstones of its success in science, technology, and innovation.

Until 1996, Korea did not appear among the top 20 countries in the OECD database in terms of GDP share devoted to R&D. By 1996, however, its R&D spending had risen to 2.1%, and by 2023 it reached 5%. Today, Korea ranks among the global leaders in R&D intensity. This trajectory demonstrates how a consistent long-term industrial strategy, combined with sustained R&D investment, can drive rapid gains in productivity.

Israel

Israel is known for its significant R&D intensity, with advancements in civilian high-tech often propelled by defense and government research. The country is known for its strong venture capital sector, supported by government initiatives such as the Yozma program and university spin-offs. The Yozma Program was indeed launched by the Israeli government in 1993 to foster the country’s venture capital ecosystem. The government initially allocated $20 million in subsidies to the Yozma Fund, while an extra $80 million was utilized to match investments from other local and international companies at a 40% rate, incentivizing them to create their own venture capital funds in Israel. In 1997, the Yozma Fund was privatized and became the Yozma Group. Israel underscores the importance of integrating defense and civilian research while nurturing an ecosystem conducive to scaling and global growth. Prior to 1992, Israel did not appear among the top 20 nations in the OECD database that dedicated a portion of their GDP to R&D activities.

Israel’s research and development landscape is distinctive due to its blend of robust government policies, private sector investment, innovation driven by the military, and a culture of entrepreneurial risk-taking. Israel focuses on a highly skilled workforce through strong STEM education in academic and defence institutions.

China

During the 2010s and 2020s, China has witnessed a significant increase in R&D spending, driven by major contributions from both government and private entities, as well as an industrial base that rapidly adopts innovations. The country’s vast size and growing domestic market amplify the benefits of R&D, creating a positive feedback loop between businesses and research efforts. Some of the initiatives implemented by the Chinese government are presented below.

Strategic initiatives:

- “Made in China 2025”: Launched in 2015, this initiative aims to move China from low-cost manufacturing to high-tech industries such as robotics, aerospace, AI, and green energy.
- Thousand Talents Program: Attracts Chinese scientists and engineers from abroad to bring advanced knowledge and experience back home.
- National Science and Technology Plans: Multi-year plans with heavy funding for emerging technologies.

Massive Investment in R&D:

- China’s R&D spending has grown exponentially over the last two decades, now second only to the United States in absolute terms.
- The government actively funds both universities and state-owned enterprises for applied research.
- Venture capital and private investment in high-tech startups have boomed, particularly in AI, biotech, and renewable energy.

Scientific output:

- China leads the world in AI research publications and patent filings.
- According to Digital Science’s Dimensions database, in 2023, 15% of the articles published worldwide featured researchers based in China in all disciplines⁴.
- It has become a global leader in quantum computing, high-speed rail technology, and 5G networks.
- Investment in clean energy technology has made China the largest producer of solar panels and electric vehicles.

Infrastructure and industrial ecosystem:

- Tech Clusters: cities like Shenzhen, Beijing, and Shanghai serve as innovation hubs with incubators, accelerators, and industrial parks.
- Manufacturing-research integration: China’s extensive manufacturing capabilities allow companies to quickly develop prototypes and expand their product lines.
- Digital Infrastructure: Widespread adoption of mobile payments, e-commerce, and IoT has created a robust testing ground for new technologies.

Talent Development

- China produces more STEM graduates annually than any other country.
- Universities collaborate with international institutions, while scholarships encourage research excellence.
- Programs such as the “double first-class” initiative aim to make top Chinese universities world-class in research output. It is a program launched in 2015 to create universities and programs that can stand alongside the best in the world.

India

IT and Software-led Growth:

- Global IT Hub: India leveraged its large, English-speaking workforce to become a global leader in software development, IT services, and business process outsourcing.
- Key players: Infosys, Tata Consultancy Services (TCS) and Wipro built strong global footprints.
- Revenue from IT exports has funded further innovation and R&D initiatives in other sectors.

Frugal Innovation (Jugaad):creating low-cost, high-quality solutions that meet the needs of consumers with limited resources.

- India is known for creating low-cost, scalable solutions that meet local and global needs. Examples include Aadhaar (World’s largest biometric ID system), Unified Payments Interface (Revolutionized digital payments with low transaction costs), Affordable Healthcare & Devices (Low-cost heart stents, solar lanterns, water purifiers).
- Government initiatives, such as Digital India (2015) which focuses on digital infrastructure, e-governance, and digital literacy and Startup India (2016) which Incentivizes entrepreneurship and innovation, offering funding support, tax benefits, and incubation.

Talent development:

- India produces millions of STEM graduates annually, feeding the IT, engineering, and research sectors through strong universities (IITs, IISc) collaborate internationally, contributing to research in AI, biotech, and space.
- Indian diaspora plays a critical role in global knowledge transfer, entrepreneurship, and investment.

Emerging Innovation Hubs

- Cities such as Bangalore, Hyderabad, Pune, and Gurugram serve as startup and tech hubs.
- Increasing presence of accelerators, incubators, and venture capital, enabling rapid scaling of tech startups.
- Focus on deep tech areas such as AI, robotics, renewable energy, and fintech.

Unique advantages:

- Large domestic market enables piloting and scaling innovations quickly.
- Cost-effective R&D and manufacturing create competitive advantages in healthcare, energy, and digital technologies.
- Cultural emphasis on entrepreneurship and adaptability fosters grassroots innovation.

The cases outlined above highlight a variety of economic, social, and political contexts, as well as diverse approaches to strengthening research and innovation ecosystems in these countries. Despite these differences, common patterns emerge across all cases: a clear R&D vision with long-term goals, strong government commitment, active private sector participation, and the development of human capital tailored to industry requirements.

Ethiopia: Yesterday and Today

Ethiopian higher education has only been around for 75 years. Addis Ababa University (initially established as University College of Addis Ababa) was established in 1950, and later became Haile Selassie I University in 1962. Jimma University was founded as Jimma College of Agriculture in 1952. Haramaya University began in 1954 as an agriculture-focused institution, and the University of Gonder was established as the Public Health College in the same year.

Ethiopia’s modern higher education system started much later than in Europe, North America, Asia and other African countries. Literature shows that the University of Bologna (Italy) was established in 1088. Oxford and Cambridge were established in 1096 and 1209, respectively. Harvard and Yale were founded in 1636 and 1701, respectively. University of Tokyo (Japan), Peking University (China), and University of Calcutta (India) were established in 1877, 1898, and 1857, respectively. Literature shows Al-Azhar University (Egypt) was founded around 970 and is considered one of the oldest continuously operating universities in the world. University of Cape Town (South Africa) was founded in 1829. This shows that while the world saw higher education evolve from medieval universities to modern research institutions over centuries, Ethiopia’s higher education was centuries later formalized, emerging from religious schooling to secular universities in the 20^th century. However, in the last three decades, the pace of expansion in Ethiopia has been rapid compared to historical global trends, driven by development needs and population growth. Currently, there are about 50 public universities in Ethiopia.

In Ethiopia, modern research activities and the establishment of research institutions preceded the development of higher education. Imperial Medical Research Institute was established in1933 by reorganizing an existing hospital and later became National Research Institute of Health (NRIH) in 1985. In 1962, the government established Children’s Nutrition Unit at the current Armed Forces Hospital, which was renamed Ethiopian Nutrition Institute (ENI) in 1965.The Department of Traditional Medicine (DTM) was founded by the Ministry of Health in 1979. These three institutions (NRIH, ENI, and DTM) merged in 1995 to form Ethiopian Public Health Institute (EPHI)⁵.

Other notable research institutions include Institute of Ethiopian Studies(1963), Institute of Agricultural Research(1966), and Armauer Hansen Research Institute (AHRI)(1970). Ethiopian Biodiversity Institute (EBI), originally founded as Ethiopian Plant Genetic Resources Centrein 1976, was restructured and renamed in 2013. More recently, Animal Health Instituteand Livestock Development Institute were established in 2021 and 2022, respectively, while the Ethiopia Policy Study Institute was founded in 2018.

Research institutions focused on the manufacturing industry, ICT, and other sectors have generally emerged later than those in health and agriculture-related research. Bio and Emerging Technology Institute was restructured in 2021 from Ethiopian Biotechnology Institute, which was originally established in 2016. Ethiopian Artificial Intelligence Institute and the Ethiopian Space Science and Geospatial Institute were established in 2021 and 2022, respectively. Manufacturing Industry Development Institute, which encompasses various manufacturing research and development centers, was restructured in 2021. Moreover, 16 Centers of Excellence were launched by the former Ethiopian Ministry of Science and Technology (MOST) at the country’s two science and technology universities: 8 at Addis Ababa Science and Technology University and 8 at Adama Science and Technology University. A list of major national research and development institutions can be found at https://www.girmahunde.com/research-institutions/.

To support human capital development, major universities in the country started to offer postgraduate programs, including PhD degrees. Some reports show that Ethiopian universities managed to award more than 500 PhD every year in 2018, which was as low as 21 in 2010⁶. This number could be much higher currently, as more PhD programs were launched or expanded in various universities. Moreover, many Ethiopians are recently travelling to other countries, particularly Asian countries, for PhD studies. In recent times, individuals with PhDs have expanded their roles to include government and industrial sectors, alongside academic and research fields. However, the ratio of PhD holders in higher education is very low compared to the minimum standard set by the higher education governing body, that is, the BSc: MSc: PhD ratio of 0.0: 70: 30.

Ethiopia has made notable strides in infrastructure, public services and industrialization efforts; however, its innovation metrics remain low by international standards. Although there have been considerable efforts to bring together universities, research and development institutions, industries, and government programs to boost the influence of research on the country’s economic development, the results have not met expectations. According to the Global Innovation Index (GII) 2025 by the World Intellectual Property Organization (WIPO)⁷, Ethiopia ranks 134^th out of 139 economies. In fact, from the African content, only South Africa appeared in the top 50, with about 0.6% of its GDP expenditure on R&D based on the 2023 OECD report⁸. A World Bank report shows the Research and development expenditure for Ethiopia in 2017 was 0.27% of its GDP. No values were reported for Ethiopia in this database since then.

Ethiopia’s higher education and research landscape, though relatively young compared to global standards, has experienced rapid growth over the past few decades. Universities and research institutions have expanded significantly, offering advanced degrees and focusing on diverse fields from health, agriculture, industrial and emerging technologies. Despite these advancements, Ethiopia still faces challenges in translating research into innovation, as reflected by low international innovation rankings and limited R&D investment. Continued efforts are needed to strengthen the integration of education, research, and industry to fully realize the country’s developmental potential.