The term “knowledge-based industries” is subject to interpretation often referring to industries which require high levels of technology and human capital. However, disaggregated employment and R&D data for the service and manufacturing sectors for Arab countries is scarce and lacking in industry detail. Classification is further complicated by the lack of reliable R&D data and low levels of private sector R&D spending in the Arab region. There are methodologies to classify manufacturing industries by technological intensity (measurement of direct and indirect, or embodied, R&D expenditure relative to output), but determining the knowledge intensity of the services sector is complicated since service sectors have low levels of R&D requiring an analysis of the skill composition of particular industries and occupations.
A more precise analysis might break down the service and manufacturing sectors according to their knowledge intensity. The OECD approach to identifying knowledge based services, includes, for example, the following ISIC classifications: Post and telecommunications (64), Finance and insurance (65-67) and Business activities (71-74). The OECD approach to defining knowledge-based industries also includes high and medium-high technology manufacturers in the following ISIC classifications: Chemicals and chemical products (24), Manufacture of machinery and equipment (29), Electrical and optical equipment (30-33) and Transport equipment (34-35) – determined by analysis of industry R&D intensity (R&D expenditure relative to output).
However, the lack of regional data necessitates a broad view of knowledge-based industries which requires looking at aggregated sectoral categories as a whole for cross country comparability. A typical approach is to focus on service based industries which correspond to International Standard Industrial Classifications (ISIC) 50-99 revision 3 including value added in wholesale and retail trade (including hotels and restaurants), transport, and government, financial, professional, and personal services such as education, health care, and real estate services. This is not an ideal approach, but, in the absence of detailed statistics, a necessary compromise.