Decentralization and Distributed Innovation: Catch-up and Leapfrog

Abstract

The catch-up of developing economies to advanced economies has been slower than some people predicted. The focus of this chapter is to present evidence and arguments that decentralized technology and distributed innovation may be changing the picture. If ASEAN governments allow decentralization and distributed innovation to take place, it may give those developing economies the best chance to leapfrog more advanced economies.

The use of Yu’E Bao in an imperfect money market, under a decentralized governance environment, acted as a catalyst to trigger the growth of China’s entire Internet finance industry. We have seen how China has created the fear of missing out in comfortable incumbents like Singapore and Japan; both are now seeing challengers arise from leapfrog economies. Forward-looking regulators such as Singapore and Japan are taking considerable calculated risks to allow for regulatory arbitrage for Distributed Ledger Technology (DLT) so that innovation can take place. We have also discussed how decentralization system and technology with digital transparency/privacy, such as blockchain technology, can be a real game changer to address the limitations in catch-up theory and the problem of the innovation paradox. It can circumvent the real bottlenecks, like barriers that are set up to retain monopolistic power and regulations to ward off challengers.

Keywords: Catch-Up Theory, Ant Financial, FinTech, China, Distributed Ledger, Blockchain, Bitcoin, Distributed Innovation, Decentralisation

JEL Classification: O1, O2, O3