1 Innovation and Competitiveness in the Information Economy: “Leapfrogging” Strategies for Developing Countries Mahendhiran Nair ∗ and Mudiarasan Kuppusamy School of Business Monash University Malaysia No. 2, Jalan Kolej, Bandar Sunway, 46150 Petaling Jaya, Selangor Tel: 603-56360600; Fax: 603-58804358 Abstract In this paper, we examined the factors contributing to the innovative capacity of nations in the information economy. This study shows that ICT infrastructure is the foundation condition (necessary condition) for enhancing the innovative capacity of nations. However, developments in intellectual capital, interaction (cooperation among all the stakeholders in the economy and global networking), institutions, incentives and integrity systems are the driver conditions (necessary and sufficient conditions) for raising the innovative capacity of nations. The linkage between innovative capacity, competitiveness and wealth accumulation is also discussed in this paper. A new empirical framework was used to benchmark the performance of twenty-five developed and developing countries based on the foundation and driver conditions. The empirical model was also used to assess the performance of these countries on the innovative capacity, competitiveness (productivity) and wealth accumulation dimensions. The sample period for the empirical study was from 1995 to 2005. The empirical results showed that countries that have harnessed the foundation and driver conditions are leaders in innovation, competitiveness and wealth accumulation in the information economy. The study also identified countries that have “leapfrogged” in some of the dimensions mentioned above and the strategies responsible for facilitating the leapfrogging process. Results from this study provide useful directions for developing countries to leapfrog to higher stage of socioeconomic development. Keywords: Innovation, competitiveness, leapfrogging, information-economy and developing countries. ∗ Please send all correspondence to the following author’s email address: mahendhiran.nair@buseco.monash.edu.my