Technology diffusion in the developing world

1. Uri Dadush Mick Riordan World Bank January, 2008 Technology diffusion in the developing world

2. A broad definition of technology • Includes the introduction of “new-to-the market” and “new-to-the-firm” techniques • Comprises: • machines • techniques (including business processes) • even market knowledge • seemingly simple technologies – such as irrigation

3. Wide gaps persist in the use of many technologies in 2004 Indexes, high-income countries=100 High-income Upper-middle Lower- middle Low- income Source: World Bank, Global Economic Prospects (2008)

4. Mexico: U-V filtered drinking water system Laos: Inexpensive solar power solutions India: Internet-enabled village kiosk Measured across several dimensions • Scientific innovation and invention • Patents, journal articles • Penetration of older technologies • Electrification • Fixed-line telephones • Sanitation • Immunizations • Penetration of newer technologies • Computers • Mobile telephones • Internet users

5. Technology 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 technical literacy, uneven distribution of older technologies and low rural penetration rates limit absorptive capacity • Persistent weakness in technological absorptive capacity may constrain further technological progress

6. Technological progress is at the heart of income growth and poverty reduction Average annual per capita income and total factor productivity growth,1990-2005 Per capita income growth TFP growth * Data for Europe & Central Asia cover period 2005/1995 Source: World Bank, Poncet 2006

7. Technological progress in developing countries has outpaced high-income countries Percent change in technological achievement, 2000s vs 1990s Source: World Bank

8. Technology gap: narrowing but still wide Index of technological achievement 1990s 2000s Source: World Bank

9. How the indexes were calculated • All data were scaled (divided by GDP, population or area as appropriate) to ensure comparability • Scaled data were averaged for each of two periods (1990-3 and 2000-3) to minimize impact of outliers • All variables converted into an index bound between zero and one by applying subtracting from each observation the minimum value observed over the two time periods and dividing by the difference between the maximum and minimum • Variables were converted to have same standard deviation and zero mean • Data set shown to have ywo or three principal components. • Data was segmented into economically sensible technology dimensions, each of which had one associated principal component. Variables in each dimensions were aggregated using weights from the principal components. • The four sub-indices were then aggregated using the first principal components of the reduced data set.

10. Technology 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

11. Developing countries are scarcely active at the global technology frontier Intensity of imported technologies summary index (2000s), high-income countries=100 Source: World Bank, Global Economic Prospects (2008)

12. Increased penetration of older technologies drives the rise in technological achievement in developing countries Increase in summary index, relative to high-income increase=100 Source: World Bank, Global Economic Prospects (2008)

13. Technology 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

14. Technology diffusion depends on exposure to foreign technology and absorptive capacity Source: World Bank, Global Economic Prospects (2008)

15. Substantial increases in market openness have stimulated technology transfer High-tech Imports (% of GDP) FDI (% of GDP) Upper-middle Upper-middle Lower-middle Lower-middle Low income Low income Source: CEPII, BACI database; World Development Indicators

16. Highly-skilled migrant populations facilitate technology transfer Developing country remittances (% of GDP) Size of diaspora (% of origin-country population) Source: www.worldbank.org/prospects/migrationandremittances.

17. Technology 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 technical literacy, uneven distribution of older technologies and low rural penetration rates limit absorptive capacity • Persistent weakness in technological absorptive capacity may constrain further technological progress

18. Most developing countries exploit recent technologies at relatively low levels % of developing countries using technology at indicated level of intensity High-income countries Developing countries Intensity of recent technology usage as a percent of global maximum Source: World Bank using data from Comin & Hobihn (2004)

19. Low diffusion in rural areas restrains overall technological achievement Subscribers per 100 persons Urban subscribers Rural subscribers * 2007 data are for June 2007 Source: Telecommunications Regulatory Authority of India

20. Despite high enrolment rates, few students pass standardized tests (2000s) Sixth graders Fourth graders % of relevant population Sources: SACMEQ II (2000), PIRLS (2001), and DHS

21. Technology in the developing world • Progress in developing countries reflects the absorption of pre-existing technologies – not at-the-frontier inventions • The technology gap between rich and poor countries has narrowed -- but remains large • Globalization has been a main driver of technological progress • Low technical literacy, uneven distribution of older technologies and low rural penetration rates limit absorptive capacity • Persistent weakness in technological absorptive capacity may constrain further technological progress

22. Progress in absorptive capacity Substantial improvements • Macroeconomic environment • Financial structure and intermediation Relatively weak improvements • Basic and advanced technological literacy • Regulatory environment and governance

23. Technological absorptive capacity has improved relatively slowly Percent increase in technological achievement and absorptive capacity, 1990s to 2000s Source: World Bank, Global Economic Prospects (2008)

24. Technology converges toward a level determined by absorptive capacity not the global frontier • By early 1990s endogenous growth theory (Barro, 1991; Casselli et al., 1996) sought to explain lack of income convergence by arguing that domestic institutions (e.g. education, competition policy, regulations etc.) determined the level of income to which countries converged • Hall and Jones (1998), Frankel and Romer (1999) Acemoglu, Easterly and Leine 2003, Rodrik et al. 2002) provided empirical support. • Same basic logic has been applied to technology Lederman & Saenz (2005)

26. Weak Absorptive capacity may begin to constrain further technological progress Technological achievement versus per capita income by region (early 2000s) All countries Source: World Bank, Global Economic Prospects (2008)

27. Weak Absorptive capacity may begin to constrain further technological progress Technological achievement versus per capita income by region (early 2000s) Europe & Central Asia All countries Source: World Bank, Global Economic Prospects (2008)

28. Weak Absorptive capacity may begin to constrain further technological progress Technological achievement versus per capita income by region (early 2000s) Europe & Central Asia All countries Latin America & Caribbean Source: World Bank, Global Economic Prospects (2008)

29. 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

30. Hans Timmer Andrew Burns World Bank January, 2008 Technology diffusion in the developing world