A Knowledge Economy (KE) leverages knowledge as the primary catalyst for economic growth, emphasizing its acquisition, development, dissemination, and utilization. In the Organization for Economic Cooperation and Development (OECD) countries, knowledge-based activities contribute to more than 50% of the GDP. Moreover, research has found the knowledge economy to have a positive impact on the socio-economic indicators such as innovation, information technology, and education of developing countries.
To foster the development of a knowledge economy, countries create various strategies and policies. In this regard, the World Bank has identified four main pillars for KE: economic incentive and institutional regime, educated and skilled workers, effective innovation system, and modern and adequate innovation infrastructure. In the recent developmental history of countries, KE has greatly advanced national development by promoting innovation, productivity, and sustainability. For instance, Switzerland, despite being a landlocked nation, has established itself as a global leader in knowledge economy with a score of 69.1 and ranks highly in higher education, knowledge infrastructure, and Research and Development (R&D) sectors. Similarly, services in the US constitute 77.6% of the GDP, mainly driven by knowledge-intensive activities like financial services, intellectual property charges, and professional and business services.
Figure 1: Nepal and Knowledge Economy
Source: Author’s compilation using Flat icon
Nepal in the global knowledge economy
Nepal’s geo-economic location among the world’s largest manufacturers places it in a disadvantageous position for competing globally in merchandise production and exports. Likewise, Nepal also has not been able to produce high-value export commodities for the international markets. Transitioning to a KE could be a possible solution for Nepal with a landlocked geography and limited industrial base. However, according to the 2023 Global Knowledge Index, Nepal ranked 101 out of 133 countries with a score of only 38.6. Nepal’s ranking was below regional countries like Bhutan (93), India (95) and Sri Lanka (91). This highlights the considerable room for improvement, particularly in fields like ICT, technical and vocational education, and research and innovation. In this context, this article explores three possible avenues required for Nepal’s transition into a knowledge-based economy.
Source: Global Knowledge Index 2023
Promoting knowledge infrastructure and ecosystem
Firstly, any country wanting to develop the knowledge economy needs to have the infrastructure and ecosystem in place. Knowledge infrastructure refers to the system that fosters and supports the development of knowledge capital. With the rise of new technologies and innovations, there have been numerous transformations in knowledge infrastructures, including the increase in online universities and courses, e-libraries, and the rapid transnational movement of knowledge workers and academics. Nepal has been sluggish in catching up with these new developments. A disheartening reality in Nepal is the lack of adequate knowledge infrastructures such as public libraries, museums, art centers, and cultural parks. Even in the capital city of Kathmandu, there is an evident dearth of public spaces dedicated to reading, learning, creativity, and intellectual discourses. Notably, Nepal also faces a lack of mass data and digital literacy, which are foundational for the KE. This situation has led to repercussions significantly deterring the country’s human capital development.
A knowledge ecosystem is a collection of creators and users of knowledge working together such as companies, universities, governments, and research institutions. A successful example of a knowledge cluster is the Massachusetts cluster, a hub for knowledge creation and innovation in the US consisting of world-renowned universities like MIT and Harvard. Another avenue to explore in the knowledge economy would be connecting it with other sectors of the economy. For instance, China has integrated knowledge with tourism with its futuristic libraries and touristic cultural centers. Similarly, the 8th-century Abbey Library of St Gall in Switzerland is a tourism hotspot for library enthusiasts worldwide.
Prioritizing innovation
Innovation and research are the backbone of any knowledge economy that is often backed by entrepreneurship, academia, and government. In developed countries like the US, R&D expenditure was USD 886 billion in 2022 or 3.46% of the GDP. Although, the government of Nepal in the new budget for FY 2024/25 allocated one percent of capital expenditure in R&D, there has not been much impact on the ground for instance the IT park in Banepa has not been functional to date due to frequent policy changes and government interventions. On a positive note, Nepal’s IT sector has shown promising signs with exports of USD 515.4 million in 2022. Furthermore, the new budget set an ambitious target of NPR 3 trillion (USD 22 billion) in IT exports in ten years.
Realizing the goal of being an innovation-led economy will require multi-stakeholder involvement in the country. A notable case study of successfully propelling an innovative ecosystem was Finland’s Strategic Centers for Science, Technology, and Innovation (SHOKs), which were private companies supporting collaborative research programs among universities, research institutions, and businesses in the country’s key economic sectors. The SHOKs were crucial in propelling innovation culture and ecosystem, placing Finland in the 6th position in the Global Innovation Index 2023.
Need for educational reform
Thirdly, educational reform will be the key to Nepal’s transition into a knowledge-driven economy. In FY 2023/24, 110,217Nepali students left the country for higher education to study in 111 countries around the world. This shows the existence of serious structural issues in Nepal’s educational system failing to fulfill the needs and wants of students, especially in higher education. Specifically, politicization in the university, delayed results, and lack of updated courses have led to a decline in the number of enrollments in Nepali universities leading to empty seats in what was previously highly competitive. Moreover, Nepal is confronted with obstacles like political instability, over-politicization, the practice of rote learning, and insufficient capital investment in educational infrastructure. Similarly, there is also the absence of a flexible liberal arts education. A successful example that Nepal can emulate is that of Estonia which launched the Tiigrihüpe project and invested heavily in the development and integration of digital literacy, education, and IT infrastructure. Furthermore, Nepal can tap into the knowledge transfer from returnees and the Non-Resident Nepalis.
Way forward
Sagar Jung Karki works as beed at beed management, having previously interned at the Institute for Integrated Development Studies (IIDS). His core areas of interest include international business, trade, entrepreneurship, and digitalization. He holds an MSc in International Business from the University of the West of England. As a global-minded individual, Sagar aspires to become a pracademic, contributing positively to the world.
