Technology diffusion in the developing world

1. Technology diffusion in the developing world Andrew Burns World Bank June, 2008 This year�s global economic prospects has concentrated on technology in developing countries. It has taken an empirical / positive approach rather than a policy driven or normative one. Today I am going to try to give you a sense of the main results of the report and some of the policy directions that these seem to suggest. This year�s global economic prospects has concentrated on technology in developing countries. It has taken an empirical / positive approach rather than a policy driven or normative one. Today I am going to try to give you a sense of the main results of the report and some of the policy directions that these seem to suggest.

2. Technology diffusion in the developing world The technology gap between rich and poor countries has narrowed -- but remains large Progress in developing countries reflects the absorption of pre-existing technologies � not at-the-frontier inventions Globalization has been a main driver of technological progress Technology diffusion across countries has picked up, but diffusion within countries remains slow and penetration rates uneven Persistent weakness in technological absorptive capacity may constrain further technological progress I�d like to leave you with five main messages. First, over the last 15 years technological progress in developing countries has been very strong � much stronger than in high-income countries. However, the frontier has also been moving and as a result the gap between poor and rich countries remains wide. Second, technological progress in developing countries is mainly a process of adopting and adapting pre-existing technologies. Developing countries perform relatively little at-the-frontier research. For them, technological progress mainly occurs through the adoption and adaptation of already existing technologies. Third, the rapid increase in technological achievement owes much to increased linkages between developing and high-income countries. Globalization in the form of imports of sophisticated products, and the transfer of business process technology through foreign investment and increased linkages with emigrant populations have increased the exposure of developing countries to more sophisticated technologies. Four, technological progress depends on more than being exposed to foreign technologies. How fast it spreads within a country is at least as important and depends on the domestic technological absorptive capacity � the quality technological literacy of the population and the quality of the business climate. Although major centers and leading firms may be relatively advanced, the rural population and the majority of firms do not exploit the best technologies � often because the necessary infrastructure and human competencies are not available. Fifth, deficiencies in the domestic absorptive capacity may become increasingly constrain technological progress in developing countries. As a result, while policy makers should ensure that openness is maintained, they will need to concentrate on strengthening domestic competencies, promoting the dissemination of technology and reinforcing the local business environment.I�d like to leave you with five main messages. First, over the last 15 years technological progress in developing countries has been very strong � much stronger than in high-income countries. However, the frontier has also been moving and as a result the gap between poor and rich countries remains wide. Second, technological progress in developing countries is mainly a process of adopting and adapting pre-existing technologies. Developing countries perform relatively little at-the-frontier research. For them, technological progress mainly occurs through the adoption and adaptation of already existing technologies. Third, the rapid increase in technological achievement owes much to increased linkages between developing and high-income countries. Globalization in the form of imports of sophisticated products, and the transfer of business process technology through foreign investment and increased linkages with emigrant populations have increased the exposure of developing countries to more sophisticated technologies. Four, technological progress depends on more than being exposed to foreign technologies. How fast it spreads within a country is at least as important and depends on the domestic technological absorptive capacity � the quality technological literacy of the population and the quality of the business climate. Although major centers and leading firms may be relatively advanced, the rural population and the majority of firms do not exploit the best technologies � often because the necessary infrastructure and human competencies are not available. Fifth, deficiencies in the domestic absorptive capacity may become increasingly constrain technological progress in developing countries. As a result, while policy makers should ensure that openness is maintained, they will need to concentrate on strengthening domestic competencies, promoting the dissemination of technology and reinforcing the local business environment.

3. Measuring technological achievement Started out with some 70+ candidate series, final selection based on time-series availability and cross-country coverage Final index based on 20 sub-indicators along 4 dimensions Scientific innovation and invention Penetration of older technologies Penetration of recent technologies Exposure to foreign technologies Used principal components to provide flexible data-driven weighting scheme for each sub-index and the overall index.

4. Technology gap: narrowing but still wide A second critical result, is that notwithstanding the rapid pace of technological progress, the gap between high-income and developing countries remains wide. Levels of technological achievement in high-income countries are more than twice those in upper-middle income countries, which are, in turn, more than twice as high as in low-income countries.A second critical result, is that notwithstanding the rapid pace of technological progress, the gap between high-income and developing countries remains wide. Levels of technological achievement in high-income countries are more than twice those in upper-middle income countries, which are, in turn, more than twice as high as in low-income countries.

5. There is significant variation in achievement within regions

6. Technology diffusion in the developing world The technology gap between rich and poor countries has narrowed -- but remains large Progress in developing countries reflects the absorption of pre-existing technologies � not at-the-frontier inventions Globalization has been a main driver of technological progress Low levels of human capital, uneven distribution of older technologies and low rural penetration rates are important weaknesses Persistent weakness in technological absorptive capacity may constrain further technological progress The second point that I want to leave you with is that technological progress in developing countries is mainly results from the adoption and adaptation of pre-existing technologies. The second point that I want to leave you with is that technological progress in developing countries is mainly results from the adoption and adaptation of pre-existing technologies.

7. Developing countries are scarcely active at the global technology frontier A number results emerged from measuring technology in this direct way. First scientific invention and innovation (proxied here by patents and journal articles) plays almost no role in explaining the level of technological achievement in developing countries (although it is very important for high-income countries). Second, relative to high-income countries and at this very aggregated level the penetration of old and new technologies is roughly similar � although there is relatively wide variation in the penetration of older infrastructure-heavy technologies within income groups � suggesting that at the individual country level, current levels of achievement are to a significant degree the result of past policies. Finally, as we will see below, developing countries are making intensive use of foreign inputs (high-tech imports, capital goods, foreign investment). A number results emerged from measuring technology in this direct way. First scientific invention and innovation (proxied here by patents and journal articles) plays almost no role in explaining the level of technological achievement in developing countries (although it is very important for high-income countries). Second, relative to high-income countries and at this very aggregated level the penetration of old and new technologies is roughly similar � although there is relatively wide variation in the penetration of older infrastructure-heavy technologies within income groups � suggesting that at the individual country level, current levels of achievement are to a significant degree the result of past policies. Finally, as we will see below, developing countries are making intensive use of foreign inputs (high-tech imports, capital goods, foreign investment).

8. Technology progress is mainly about absorbing and adopting technologies developed elsewhere In trying to understand these results and the process by which some developing countries achieve rapid technological progress while others have been more stagnate, we created the following schematic. It characterizes the process of technological progress as one where a developing country is first exposed to foreign technologies either through foreign trade, foreign investment or contact with the outside world and here national emigrant populations can play a critical role (the upper third of the figure). The more exposed an economy is to these technologies the better the chance that they will be absorbed in the domestic economy. But, how well that absorption occurs depends on a wide-range of domestic or �behind-the-border� factors that can either facilitate the transmission and absorption of foreign technologies or may block their absorption (the multi-ringed drum in the middle of the figure). These include: the macroeconomic conditions, governance structure and investment climate, The ability of the population to master new technologies (basic and advanced technical literacy), The extent government policy and private institutions succeed in financing innovative firms, Of course the existence of pro-active policies to stimulate dissemination. Finally dynamic factors including increasing returns to scale and spillover effects can under certain conditions magnify the domestic impact of those initial flows. In trying to understand these results and the process by which some developing countries achieve rapid technological progress while others have been more stagnate, we created the following schematic. It characterizes the process of technological progress as one where a developing country is first exposed to foreign technologies either through foreign trade, foreign investment or contact with the outside world and here national emigrant populations can play a critical role (the upper third of the figure). The more exposed an economy is to these technologies the better the chance that they will be absorbed in the domestic economy. But, how well that absorption occurs depends on a wide-range of domestic or �behind-the-border� factors that can either facilitate the transmission and absorption of foreign technologies or may block their absorption (the multi-ringed drum in the middle of the figure). These include: the macroeconomic conditions, governance structure and investment climate, The ability of the population to master new technologies (basic and advanced technical literacy), The extent government policy and private institutions succeed in financing innovative firms, Of course the existence of pro-active policies to stimulate dissemination. Finally dynamic factors including increasing returns to scale and spillover effects can under certain conditions magnify the domestic impact of those initial flows.

9. Technological diffusion within countries is key Leading firms and cities use technologies relatively intensively But rural areas lag (70% urban cell phones in India, 7% rural) Physical, human and regulatory infrastructure matter Technology diffuses mainly through the actions of firms and individuals: New-to-the-market innovations: Successful introduction of cut flower industry into Colombia, Kenya New-to-the-firm innovations: Adoption of cell phones or internet into the operations of firms Therefore commercialization / diffusion is as (more?) important as R&D

10. The technology gap between rich and poor countries has narrowed -- but remains large Progress in developing countries reflects the absorption of pre-existing technologies � not at-the-frontier inventions Globalization has been a main driver of technological progress Low levels of human capital, uneven distribution of older technologies and low rural penetration rates are important weaknesses Persistent weakness in technological absorptive capacity may constrain further technological progress

11. Market openness and contact with the diaspora stimulate technology transfer Much of the increase in technological achievement over the past 15 years would appear to have been abetted by the sharp increase in the exposure of developing countries to foreign technologies. For example, imports of high-tech goods have doubled as a percent of GDP as has foreignj direct investment, an important source of process technology transfers.Much of the increase in technological achievement over the past 15 years would appear to have been abetted by the sharp increase in the exposure of developing countries to foreign technologies. For example, imports of high-tech goods have doubled as a percent of GDP as has foreignj direct investment, an important source of process technology transfers.

12. Technology diffusion in the developing world The technology gap between rich and poor countries has narrowed -- but remains large Progress in developing countries reflects the absorption of pre-existing technologies � not at-the-frontier inventions Globalization has been a main driver of technological progress Technology diffusion across countries has picked up, but diffusion within countries remains slow and penetration rates uneven Persistent weakness in technological absorptive capacity may constrain further technological progress

13. Diffusion across countries has accelerated but penetration within countries remains weak

14. Technology diffusion in the developing world The technology gap between rich and poor countries has narrowed -- but remains large Progress in developing countries reflects the absorption of pre-existing technologies � not at-the-frontier inventions Globalization has been a main driver of technological progress Technology diffusion across countries has picked up, but diffusion within countries remains slow and penetration rates uneven Persistent weakness in technological absorptive capacity may constrain further technological progress

15. Measuring technological absorptive capacity Index based on 15 sub-indicators along 4 dimensions Basic and advanced technological literacy Governance Macroeconomic environment Financial structure and intermediation Weights for summary and overall index derived using principal components analysis.

16. Progress in absorptive capacity Substantial improvements Macroeconomic environment Financial structure and intermediation Relatively weak improvements Basic and advanced technological literacy Regulatory environment and governance Progress in terms of improving absorptive capacity has been much weaker than in terms of technology itself. In part this reflects the difficulty of the task. Areas of relative strength include the macroeconomic environment where inflation rates are down thtoiughout the develpoing world, government deficits are much lower and debt ratios in decline. Similarly, the extent of financial intermediation in developing countries has increased substantially � and as a result, innovative firms are much more likely to find financing than they were in the past. As we have seen, less progress has been made in terms of technological literacy, while in terms of the regulatory environment and the business climate progress has been very uneven with some countries making great advances, notably among transition countries seeking to or recently having joined the EU. Unfortunately the majority of developing countries have lost ground or remained stable based on these measures.Progress in terms of improving absorptive capacity has been much weaker than in terms of technology itself. In part this reflects the difficulty of the task. Areas of relative strength include the macroeconomic environment where inflation rates are down thtoiughout the develpoing world, government deficits are much lower and debt ratios in decline. Similarly, the extent of financial intermediation in developing countries has increased substantially � and as a result, innovative firms are much more likely to find financing than they were in the past. As we have seen, less progress has been made in terms of technological literacy, while in terms of the regulatory environment and the business climate progress has been very uneven with some countries making great advances, notably among transition countries seeking to or recently having joined the EU. Unfortunately the majority of developing countries have lost ground or remained stable based on these measures.

17. Despite high enrolment rates, few students pass standardized tests (2000s) The problem of absorptive capacity is particularly difficult. Although great strides have been made to increase enrolment rates in developing countries, the results in terms of improvments in basic literacy have been disappointing with less than 50 percent of enrolled students passing age-appropriate standardized tests of literacy. Particularly worrisome is that the same problem is observed among both many low income and several middle-income countries.The problem of absorptive capacity is particularly difficult. Although great strides have been made to increase enrolment rates in developing countries, the results in terms of improvments in basic literacy have been disappointing with less than 50 percent of enrolled students passing age-appropriate standardized tests of literacy. Particularly worrisome is that the same problem is observed among both many low income and several middle-income countries.

22. Key features of a pro-technology policy stance No detailed roadmap for promoting technological progress, but certain policy directions are indicated: Maintain openness to trade, foreign direct investment and participation of diaspora Further improve the investment climate so as to allow innovative firms to grow and flourish Improve basic infrastructure (roads, electricity, telephony) Raise the quality and quantity of education throughout economy not just major centers Emphasize technology diffusion by reinforcing dissemination systems and the market-orientation of R&D programs Overall, technology developments of the past 15 years are promising. Spurred on by increased globalization and exposure to international competition and foreign technologies, technological achievement in developing countries has increased more quickly than in high-income countries. However, the factors that determine the ability of developing countries to absorb technology � the main driver of their technological progress has increased much less rapidly. This may portend a slowing in future progress unless policy succeeds in strengthening behind-the-border policies that facilitate the absorption of foreign technologies and make it easier for innovative firms to be created and to expand � but also allow inefficint firms to expire. Take significant steps to raise the quality of domestic human capital. In low income countries this means basic education but also vocational education so that enough individuals have the basic skills so that they can both build and maintain water and sanitation systems and but also make a living doing so. For the formal education sector efforts to increase the quality of human capital must continue, not only by ensuring that more students stay in school longer, but also by raising standards, which in too many cases are too low. Overall, technology developments of the past 15 years are promising. Spurred on by increased globalization and exposure to international competition and foreign technologies, technological achievement in developing countries has increased more quickly than in high-income countries. However, the factors that determine the ability of developing countries to absorb technology � the main driver of their technological progress has increased much less rapidly. This may portend a slowing in future progress unless policy succeeds in strengthening behind-the-border policies that facilitate the absorption of foreign technologies and make it easier for innovative firms to be created and to expand � but also allow inefficint firms to expire. Take significant steps to raise the quality of domestic human capital. In low income countries this means basic education but also vocational education so that enough individuals have the basic skills so that they can both build and maintain water and sanitation systems and but also make a living doing so. For the formal education sector efforts to increase the quality of human capital must continue, not only by ensuring that more students stay in school longer, but also by raising standards, which in too many cases are too low.

23. For more info: http://www.worldbank.org/gep2008 Technology diffusion in the developing world This year�s global economic prospects has concentrated on technology in developing countries. It has taken an empirical / positive approach rather than a policy driven or normative one. Today I am going to try to give you a sense of the main results of the report and some of the policy directions that these seem to suggest. This year�s global economic prospects has concentrated on technology in developing countries. It has taken an empirical / positive approach rather than a policy driven or normative one. Today I am going to try to give you a sense of the main results of the report and some of the policy directions that these seem to suggest.