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Technology is at the heart of economic growth. From historical accounts of how technological change since the Industrial Revolution has shaped economic development, to endogenous growth models, technology has been identified as a key ingredient of growth and economic transformation. While there has been a widespread reduction in the time needed to acquire and adopt a new technology, current technological differences across countries originate mostly from differences in how intensively new technologies are eventually used once they arrive in a country. In this context, measuring the uses of technology and understanding the drivers of and barriers to the adoption of technology are, therefore, critical to designing policies that facilitate economic development.
Technological catch-up happens through firms. Firms are the prime actor for adopting more sophisticated technologies to be applied in the production of goods and provision of services. While technology can improve economic welfare through different channels, it is primarily through the process of adoption by firms that most workers are affected. Workers can have access to higher-productivity jobs and countries can achieve higher prosperity through the adoption of more sophisticated technologies by firms.
Yet around the world, there is a large technological divide across firms. This divide is reflected in low productivity levels and a lack of better-quality jobs—particularly in developing countries, where the number of enterprises per worker relatively close to the forefront of technology sophistication (the technological frontier) is quite low and where firms are often confined to more rudimentary and less automated technologies. But this divide is not restricted to developing economies. In high-income countries the gap between frontier and laggard firms is also large and could potentially increase, which could, in turn, deepen challenges associated with income inequality across and within countries. The technological divide across firms also affects firms’ varying ability to cope with and bounce back from economic shocks, given that more capable and technologically sophisticated firms are also more resilient.
Bridging the technological divide is thus an imperative for development policies. Addressing some of the most relevant development challenges, from eradicating global poverty to promoting environmentally sustainable economic growth, will require technology upgrading of firms across the globe. The fact that most firms, particularly in developing countries, are far from the technological frontier suggests that this is not an easy challenge, but it also suggests that there are many opportunities for enhancing productivity and generating high-quality jobs in developing countries. To better understand this challenge at the firm level, we need to improve existing measures of technology and the body of data that can better reveal how firms make decisions and actually use (or do not use) technology in their operations. Armed with this understanding, policy makers and practitioners can design better policies and interventions to help firms adopt better and more sophisticated technologies.
This volume focuses on the adoption and use of technology by firms. Despite the centrality of technology adoption in the growth processes, current methods to measure technology at the level of the firm are not able to capture the ubiquity of technology use. This requires opening the “black box” of the firm and understanding how technologies are applied to the main tasks that firms need to carry out to produce and sell goods and services. To this end, this volume introduces a new methodology to measure technology at the level of business functions particular to the operations of that firm. This approach allows us to understand what technologies are used, how they are used, and why they were chosen by firms, which is a critical step to understand the process of technology diffusion and the overall technological progress of an economy.
The seventh volume in the World Bank Productivity Project is organized in three parts aiming to address to following questions:
- Where is the technology frontier and how far from it are firms in developing countries?
- What are the implications of the technological divide for jobs, growth, and resilience?
- What can countries do to bridge the technological divide?
It contributes to the literature in several ways:
- It describes a new methodology for measuring technology adoption at the firm level.
- It presents new evidence of the firm-level technological divide across different dimensions, such as countries, regions, sectors, firms, and business functions, using a novel data set covering firms in agriculture, manufacturing, and services from a representative set of countries.
- It provides new evidence on the effects of technology readiness on resilience.
- It offers novel findings regarding the limitations of improving access to digital infrastructure on technology adoption.
- It summarizes the tools available to policy makers aiming to promote technology upgrading.
The volume’s findings and analytical insights draw on primary data collected in 11 countries, including Bangladesh, Brazil (only the state of Ceará), Burkina Faso, Ghana, India (only the states of Tamil Nadu and Uttar Pradesh), Kenya, the Republic of Korea, Malawi, Poland, Senegal, and Vietnam. The findings build on a set of background papers and analytical work led by Xavier Cirera, Diego Comin, and Marcio Cruz, and can be summarized in the main messages that follow, split into measures of the technological gap and actions that countries can do to bridge the technological divide.
Measuring the Technological Divide
- Message 1. Most firms in developing countries are quite far from the technology frontier, and they may not be aware of the extent to which they lag.
- Message 2. Firms’ levels of technology sophistication span multiple dimensions. The more disaggregated the unit of analysis—from country to region, to sector, to firm, to business functions within the firm—the larger the variation.
- Message 3. The transition from industrial revolutions is incomplete in developing countries.
- Message 4. Leapfrogging is rare. Technology upgrading by firms is mostly a continuous process of learning.
- Message 5. Technology adoption is important for productivity, jobs, and economic resilience.
Bridging the Technological Divide
- Message 6. Access to reliable and high-quality internet service and other infrastructure is a necessary condition for technology upgrading, but not a sufficient one.
- Message 7. Market competition is an important driver of adoption.
- Message 8. Technology upgrading policies should shift the focus from access to technology to use of technology.
- Message 9. The COVID-19 shock has provided an opportunity for technology upgrading.
“Bridging the Technological Divide: Technology Adoption by Firms in Developing Countries, the seventh volume in the World Bank Productivity Project, breaks new ground in the empirics of technology adoption. Like The Innovation Paradox before it, this volume stresses the importance to economic growth of the flow of ideas and new practices. Indeed, recent studies suggest that differences in the evolution of technology diffusion across countries drive a corresponding evolution of productivity (total factor productivity) that can account for the divergence in the world income distribution over the last 200 years. The hope is that the volume will stimulate interest in exploring this critical dimension of growth generally and exploiting these surveys in particular.”
William F. Maloney, Chief Economist, Latin America and the Caribbean Region
"Diego Comin is the leading scholar in the economics profession on the past and recent history of technology adoption in developing countries. This new book by Comin, coauthored with Xavier Cirera and Marcio Cruz, deploys a remarkable new data set on technology within firms. It shows the surprising amount of variation in successful technology adoption not only between countries, but between firms in the same country and even between different parts of the same firm. This technological divide makes it more urgent than ever to find policies to promote the catchup of poor to rich countries through technological upgrading."
William Easterly, professor of economics and co-director of the Development Research Institute, New York University