Over the past three decades, Asia’s extraordinary rise on the global stage has been driven largely by its emergence as the world’s low-cost, high-output factory.

But as countries strive to become more diversified in the face of strains on their resources and a changing workforce, building knowledge economies is increasingly regarded as the most sustainable way of driving growth while providing citizens with higher incomes and more fulfilling work.

It is also the key to Asia realising its full potential this century, and avoiding the “middle-income trap” into which other developing regions have fallen.

Building a knowledge economy takes quality, accessible higher education, sound information infrastructure, better research and development, innovation, the right economic institutions and autonomy to collaborate and share information.

Leading OECD countries, in which more than 50 per cent of gross domestic product is knowledge-related, exemplify these qualities.

ASEAN countries have posted impressive levels of growth, higher than the global average, in recent years.

But a cursory glance at their rankings in the 2012-2013 Global Competitiveness Report indicates that all but Singapore are struggling to make the transition to knowledge-driven economies.

Except for Singapore, none are innovation-driven. Cambodia and Vietnam are still factor-driven, Indonesia and Thailand are efficiency-driven and Brunei and the Philippines are between those two stages.

Malaysia, however, has gained ground and is making the transition to become innovation-driven.

For ASEAN countries, much work needs to done in education and skills development, technological readiness and innovation.

Gaps in the quality of education, compounded by low gross tertiary enrolment rates of less than 50 per cent, remain a big stumbling block.

Apart from Singapore, none ranks among the top 50 globally in technological readiness. And, except for Singapore, Malaysia and Indonesia, the level of innovation is weak in the ASEAN region.  

Singapore’s success, despite its small size and limited natural endowments, has been nothing less than remarkable. The island state is now the second most competitive economy in the world.

A quick look at the Knowledge Economy Index puts Singapore in the mid-range for OECD countries, but the Global Competitiveness Report shows it is ahead of OECD countries in several areas, including economic incentives and institutions.

It has a highly efficient public sector that works with the private sector to promote knowledge development. It performs better than most OECD members in its ability to adopt and absorb latest technologies.

The only small chinks in Singapore’s armour are tertiary-education enrolment and the capacity to innovate.

As neighbouring economies become more knowledge-driven, competition for a relatively tight pool of skilled workers will increase, posing a potential challenge to innovative thinking.

The ability to access this high-quality education is a way to address such a future constraint. Building knowledge economies will complement the ASEAN Economic Community, where goods, investments and skilled labour will be more mobile.

But this means ASEAN countries will need to begin redesigning their development programs and regional co-operation activities around the elements of a knowledge economy.

As countries will need to invest in both hard and soft infrastructure to facilitate knowledge creation and diffusion, and build an active public sector that collaborates with the private sector to nurture knowledge and innovation, development assistance will need to be geared to building knowledge infrastructure rather than just the “bricks and mortar” investments of the past.

Becoming a knowledge economy means that knowledge is internalised and disseminated within the economy.

The transformation to a knowledge economy cannot happen merely through the production of knowledge-intensive goods and services. India and the People’s Republic of China are clear proof of that.

An educated, skilled workforce is critical for knowledge economies, and a challenge in a region where the average length of education is barely eight years and informal employment is high.

Investing in world-class institutions, strengthening university-industry links and promoting cross-border institutional partnerships can create greater opportunities. Building talent widely will also help foster greater inclusiveness.

ASEAN countries certainly exhibit the potential to achieve more growth.But for them to sustain this expansion and, at the same time, make it beneficial to all, they  have to recognise these critical elements of a knowledge economy and work together in investing their growth dividends towards becoming knowledge economies.

Bindu N Lohani is the Vice-President for Knowledge Management and Sustainable Development of the Asian Development Bank.