Technology diffusion in the developing world Andrew Burns World Bank June, 2008

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

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 1.Scientific innovation and invention 2.Penetration of older technologies 3.Penetration of recent technologies 4.Exposure to foreign technologies Used principal components to provide flexible data-driven weighting scheme for each sub-index and the overall index.

Technology gap: narrowing but still wide Index of technological achievement, high-income countries= s 2000s Source: World Bank, Global Economic Prospects (2008)

There is significant variation in achievement within regions East Asia Europe and Central Asia Latin America & Caribbean Mid-East & N. Africa South Asia Sub-Saharan Africa Index of technological achievement

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

Developing countries are scarcely active at the global technology frontier Intensity of scientific innovation and invention, High-income countries=100 Source: World Bank, Global Economic Prospects (2008)

Technology progress is mainly about absorbing and adopting technologies developed elsewhere Source: World Bank, Global Economic Prospects (2008) Technology in the developing country Exposure to foreign technology Capacity to absorb = + Technological progress In-country diffusion

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

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 Technology diffusion in the developing world

Market openness and contact with the diaspora stimulate technology transfer High-tech Imports (% of GDP) Source: CEPII, BACI database; World Development Indicators Upper-middle Low income Lower-middle Size of diaspora (% of origin-country population)

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

Diffusion across countries has accelerated but penetration within countries remains weak

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

Measuring technological absorptive capacity Index based on 15 sub-indicators along 4 dimensions 1.Basic and advanced technological literacy 2.Governance 3.Macroeconomic environment 4.Financial structure and intermediation Weights for summary and overall index derived using principal components analysis.

Progress in absorptive capacity Substantial improvements 1.Macroeconomic environment 2.Financial structure and intermediation Relatively weak improvements 1.Basic and advanced technological literacy 2.Regulatory environment and governance

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

Technological achievement versus per capita income by region The rise in technological achievement tends to flatten out as income rise

Technological achievement versus per capita income by region All countries The rise in technological achievement tends to flatten out as income rise

Technological achievement versus per capita income by region Europe & Central Asia All countries The rise in technological achievement tends to flatten out as income rise

Technological achievement versus per capita income by region Europe & Central Asia All countries The rise in technological achievement tends to flatten out as income rise Latin America & Caribbean

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

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