Creating a Competitive and Innovative Manufacturing and Service Economy

This article first considers the current state of diversification of the production and export structure of Central Asian economies. It then explores alternative approaches to the diversification, competitiveness, and innovation transformation challenge. Taking as given the prevailing trends of technological progress at a global level, this article analyzes the relevance of the various overlapping and strategic components of these approaches for the five Central Asian countries, which would allow an effective absorption and adaptation of available technologies and foster a culture of innovation in Central Asia. The key policies common to all the approaches include effective institutions and a favorable business environment for domestic and foreign investors; effective human resource development; strong connectivity nationally and internationally, in terms of transport infrastructure, logistics, and IT access; and the fundamentals of sound macroeconomic policy and a well-developed, resilient financial sector. In addition, this article will consider targeted interventions in support of the development of modern cities, of an internationally competitive innovation system, and of selected manufacturing and service activities.