The ability to realize productivity gains and increased efficiency at higher levels of technological sophistication is central to the sustainability of economic growth. Growth that occurs in the absence of productivity-enhancing adaptations depends on mobilizing increases in inputs—labor, capital, and natural resources—that are subject to significant environmental, social, and political limits. If firms, economic sectors, and countries fail to move up the “value-added” ladder of productivity-led growth, they will tend to end up squeezed between environmental and wage pressures, on the one hand, and the need to remain competitive, on the other.
Thus, finding a way to sustain growth through productivity gains has become a political as well as an economic imperative for the “second tier” of industrializing East Asian economies such as Thailand and Malaysia, caught between even lower-wage production locations and the first generation of Northeast Asian industrializers, which have moved successfully into higher-end innovation and production niches....
