Knowledge-Intensive Economies
The notion of a knowledge-intensive economy is of relatively recent vintage but has taken a powerful hold on governments in many parts of the world. It is easy to see why. Industries that rely heavily on the application and exploitation of knowledge are driving growth in both manufacturing and services. They tend to create well-paying jobs, to contribute high-value output, and to stimulate economic activity generally. The global nature of these developments compels governments to take part in them or be left behind, to the detriment of a country's economic standing and well-being.
Industry anticipates and reacts to these same fundamentals. Growing markets, including rapidly expanding ones in Asia, beckon, especially for knowledge- and technology-intensive goods and services. They offer growing buying power, cheap labor, and often strategically structured government incentives intended to attract investment. Spurred by both market and government activities, these economies, and particularly their knowledge-intensive sectors, have grown very rapidly in a number of regions.
Indicators of the shift toward knowledge-intensive economic activity abound. Around the world, service sectors are expanding, driven by rapid growth of their most knowledge-intensive segments. Goods from high-technology manufacturing segments represent a growing share of manufacturing output. Countries are investing heavily in expansion and quality improvement of their higher education systems, easing access to them, and often directing sizable portions of this investment to training in science, engineering, and related S&T fields. The concept of innovation figures prominently in discussions of economic policy.
Taken together, these activities have spawned trends that are reshaping the world's S&T economy, now dominated not only by the United States and the EU, but also by selected Southeast and South Asian economies. The broad changes, generally starting in the mid-1990s and continuing unabated, have the United States holding its own in terms of (generally high) world shares, the EU-25 losing some ground, and the Asia-10 group increasing its world share. In Asia, Japan is losing world share on many indicators, while China is rapidly gaining ground, especially since the mid-1990s.
Knowledge-intensive industries are reshaping the world economy.
Knowledge-intensive industries, both in services and manufacturing, form a growing share of economic output worldwide and in many individual countries. While the estimated volume of worldwide services doubled between 1985 and 2005, knowledge-intensive services grew faster. After the mid-1990s, their growth accelerated to approximately 3.5% annually in real terms, compared with about 2.5% for other types of services. A similar shift occurred in high-technology manufacturing, where output rose from about 12% of total manufacturing output to about 19% over two decades 
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These developments affected various countries and regions differently, leading to considerable shifts in world shares, particularly in high-technology manufacturing. The Asia-10's share increased from 29% to 41% over two decades. However, within the group, Japan's share declined from 25% in 1985 to 16% in 2005, while China's share rose, with sharp acceleration starting in the mid-1990s, from under 2% to 16% over the same period ).
Trade patterns in knowledge-intensive services and high-technology manufacturing have changed.
Trade volume in high-technology manufactures has risen about 100-fold over the two decades, with exports reaching approximately $2.3 trillion in 2005 ).).
The comparative strength of the U.S. economy over the past several years was reflected in U.S. trade in high-technology goods, especially in information and communications technologies (ICT). The strong U.S. economy boosted imports of high-technology goods, which rose to $291 billion in 2006 from $196 billion in 2000. However, U.S. exports of these types of goods failed to keep pace, and imports have exceeded exports since 2002, producing the first U.S. trade deficit in this segment of the U.S. economy ).
The growing technological sophistication of Asian trade partners is evident in the growing imports of high-technology goods from Asia that are not balanced by U.S. exports to these economies. The overall high-technology goods deficit is driven by trade with Asia, while trade with Europe, North American Free Trade Agreement (NAFTA) partners, and Latin America is broadly in balance ).
However, the United States continues to maintain a healthy position in royalties and fees for intellectual property. This includes both cross-border intrafirm transactions and transactions between unaffiliated firms; the latter accounted for approximately 25% of all such transactions over the past two decades ).
Nascent S&T capabilities are reflected in gains in patenting and scientific publishing.
As countries strive to develop knowledge-intensive segments of their economies, they promulgate policies to strengthen domestic S&T capabilities so as to become less reliant on foreign expertise. Some results of these efforts are difficult to measure, such as the quality of rising numbers of higher education degrees awarded, but others are eventually reflected in readily quantified data. Intellectual property rights in major markets in the form of patents are generally accepted as indicating a degree of technological innovativeness and sophistication. Publication of rising numbers of scientific and technical articles in international, peer-reviewed journals is evidence of growing scientific capacity, as are increasing international collaborations. A number of governments are actively encouraging these activities and monitoring these and related indicators.
Patent applications to the U.S. Patent and Trademark Office (USPTO) seek intellectual property protection in the world's largest national economy. Applications from foreign sources reveal growing technological capabilities around the world, as well as rising incentives to protect the exploitation of potentially economically valuable inventions. Such applications have more than tripled since 1985, with U.S. applications consistently accounting for 53% or more through 2005. Over the period, applications from EU countries little more than doubled, while those from Asia increased fivefold ).
These divergent growth rates created large shifts in the country and regional shares of U.S. patent applications. The EU, long the major non-U.S. source, lost ground in the late 1980s to a nascent Asia, as the EU's share declined from 21% to 13% of total applications registered by the USPTO; Asia's share in the meantime rose from 19% to 29%. Within Asia, Japan's share fluctuated around 18% to, briefly, 22% while that of smaller Asian economies such as South Korea, Taiwan, and Singapore rose from 1% to 9% ).
Progress in building the S&E base underlying indigenous technical advances is registered in articles published in the international peer-reviewed literature. On this measure, the U.S. and Japanese outputs grew marginally over the 1995–2005 decade, while Asia's output doubled ).
