Over the past few years, we have been witnessing tectonic changes in the global economy, with seemingly stable economic performers losing their competitive edge, while developing economies such as India, the Philippines or Indonesia showing strong growth at 6-8%.
What are the reasons behind this structural transformation? Above all, this has to do with limited resources, human and natural, which leads to ever-increasing competition between economies. A particular country can overpower its rivals due to economic assets such as territory, resources, or technology.
Technological progress, which encompasses innovation and deployment of new technology, is one of the key factors in the sustainable development of modern-day economies. Various countries’ capacity for innovation is reflected in an annual ranking known as the Global Innovation Index. In this regard, the question arises: how can a country achieve technological leadership and even technological dominance over other economies?
This is really thought-provoking, because, as everything else in our lives, this can be achieved by very different methods, both honest and not so honest, while certain countries are just lucky to be in the right place at the right time.
We’ll begin with the good practices that represent fair competition, such as attracting foreign direct investment and intensively drawing on local assets and capabilities such as human capital, climatic conditions, natural resources, and favorable circumstances.
This approach requires a strong commitment and strenuous efforts to foster and support your own workforce, work out a development strategy for your territory, attract foreign businesses to cooperation on an equal footing, etc. These policies should eventually result in technological progress, but this is not going to be a quick path to success; it will take at least 10 or 15 years.
However, there is another way to achieve technological excellence – through attracting the resources that have been nurtured by other economies for decades.
The American economy is a perfect example of this approach. The United States is successfully luring European companies and European workforce to its market. The trend was actually triggered by the US finding itself behind China in terms of the share of its companies involved in global supply chains. China’s share has surged from 5% to 20% since 2000, while America’s share, on the contrary, decreased from 19% to 9%. Moreover, China has built up its presence in global industry value chains from 5% to 23%, an absolute record in recent decades. Since making this kind of technological leap in a couple of years was not feasible, the United States opted for attracting all the necessary resources and technologies from the outside. As a result of this strategy, just in the last two years, the German economy has lost a large number of companies, which decided to relocate their business to China or the US, closer to the source of cheap natural resources.
Another unconventional way to achieve technological dominance is to take clever foreign economic policy steps, which effectively accommodate the interests of key players. For example, in 1972, the US chose to strike up an economic alliance with China, fearing to lose in the confrontation with the USSR, which was also preparing to conclude a treaty with China following successful negotiations. In an attempt to outplay the USSR in the arms race, the US made a smart move and achieved rapprochement with China, eventually binding China to its own economy technologically. The United States provided China with entire factories complete with ready-to-use assembly lines and machine tools, along with technology transfer and training of engineers and other specialists. Eventually, the US spurred China’s technological development, and what we see today is the consequences of the chain of events it triggered.
As we can see, countries can use very different tools to promote their technological development and achieve economic dominance, and foreign investment alone is not always the key to further growth.

By Yekaterina Novikova, PhD (Economics), Associate Professor, Department of Economic Theory, Plekhanov Russian Economic University