Adaptive efficiency of Japan's national innovation system toward a service oriented economy

Japan's high-technology miracle in an industrial society can largely be attributed to the vigorous R&D investment of its industry sector. Japan's industry R&D intensity ranks second after Sweden in the 30 OECD countries, while the ratio of government to industry R&D is the lowest. This demonstrates the Japanese government's explicit inducing function with respect to the vigorous R&D of industry. While Japan's economic stagnation in an information society as a result of the "lost decade" of the 1990s revealed the limit of the foregoing inducing function in a new paradigm and necessitated a new type of inducing dynamism, a noteworthy surge in innovation in recent years in the leading-edge activities of Japanese high-technology firms suggests a possibility of adaptive efficiency of Japan's national innovation system toward a service oriented economy. Aiming at examining such a possibility, this paper attempts a comparative analysis of the inducing power of government R&D with respect to industry R&D in five industrialized countries. Given a new paradigm, the focus of the analysis is to examine inducing dynamism having qualitative rather than quantitative impacts that may be leveraged by the government's R&D budget. An empirical analysis demonstrated that the Japanese government's R&D budget appropriation toward diversification triggered by the First Science & Technology Basic Plan in 1996 functioned well in constructing a virtuous cycle. This lead to contributing to industry's R&D efficiency, thereby contributing to GDP growth. This finding provides a constructive suggestion regarding firm competitiveness strategy toward a service oriented economy.