Technology Adoption During the Process of Development: Implications for Long-Run Prospects

Abstract

Most papers studying the impacts of technology adoption on income trajectories assume that firms adopt frontier technologies when available. If these technologies are skill intensive, less-developed economies may fail in successfully implementing them and may become trapped in a low-growth equilibrium. Within a Schumpeterian growth model, we show that differences in adoption barriers and incentives to the accumulation of skills produce differences in the technology level that is optimal to adopt. If the economy is not overly distorted, copying nonfrontier technologies helps compensating for the scarcity of skills and increases the likelihood of copying frontier technologies in the long run. If distortions are significant, it may be optimal to copy less-advanced technologies even in the long run. If adoption is not a skill-intensive activity, then copying frontier technologies is always optimal; all economies achieve a high-growth equilibrium and only income differences persist in the long run.

Productivity in Emerging-Market Economies: Slowdown or Stagnation?

“…On average, the TIPS yield is 1,000 basis points higher than the rate I constructed, but the trend is very similar.23 Adoption of frontier technologies does not necessarily result in higher growth. The effect depends on the skill intensity of these technologies as well as the absorptive capacity of the economy(Mies 2017). This issue may be more relevant in lower-income countries, where the skill gap may be large.24 For a discussion of the Latin American experience during the global financial crisis, see.…”