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

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 Source: World Bank, Global Economic Prospects (2008) Indexes, high-income countries=100 High-income Upper-middle Lower- middle Low- income

4. 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 Mexico: U-V filtered drinking water system Laos: Inexpensive solar power solutions India: Internet-enabled village kiosk

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 Source: World Bank, Poncet 2006 * Data for Europe & Central Asia cover period 2005/1995 Average annual per capita income and total factor productivity growth,1990-2005 Per capita income growth TFP growth

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 Source: World Bank 1990s 2000s

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) Source: CEPII, BACI database; World Development Indicators FDI (% of GDP) Low income Upper-middle Low income Lower-middle Upper-middle Lower-middle

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

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 technologies are observed in most developing countries, but with low penetration rates % of developing countries using technology at indicated level of intensity Source: World Bank using data from Comin & Hobihn (2004) Intensity of 15 recent technology usage as a percent of global maximum

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

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

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

22. 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

23. 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

24. 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)

25. 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)

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

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

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

30. 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

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