Knowledge Rich Industries and Balanced Growth for Transitional Economies

Abstract

In this paper, economic development through knowledge-rich proc­essing industries as a potential dominating path for countries in transi­tion is examined. It is particularly important that all countries in transi­tion are richly endowed with intellectual resources which is shown to be a factor (a) critical for transition, (b) receiving a growing value-added compensation, and (c) giving potential for intellectual rent. A two- industry dynamic model considering intellectual resources demonstrates that there exists optimal distribution of investment allowing to maximize national income, that is, a way for balanced growth in knowledge-rich economy. Government can support this process through re-direction of investment flows to achieve optimal investment distribution and invest­ment into institutional capital. For successful growth through know­ledge-rich industries, R&D sector should also be enhanced to become market-oriented.