Sunday, 31 May 2009

Why is technology important for growth?

A technology tells a producer how to organise their inputs in order to make a good or service. Technology can cover many different things, such as: computers and other capital goods (where the information is contained in a box so the producer does not have to worry about understanding the methods); scientific theories; or ways of running an office. The broadness of the term and apparent intensive use in producing goods in developed economies suggest that it should be important for growth.

Econometricians who have measured its impact often say that it is. Getting technologies that increase output or technologies that combine well with other technologies has been found by some studies to be responsible for over half of economic growth worldwide. There is much uncertainty in the results. The way technology is usually measured in these estimations understates its role compared with a more commonsense understanding of its contribution, as if a new technology’s seller gets the extra income from the technology’s use, the extra income is said to be due to increases in capital rather than technology.

When is a banana not a banana?

When it is a banana collected for food and considered as a technological object. Technology theory tries to find ways of describing objects that help to explain how they interact with the rest of the economy. The following description of a banana could apply to many small scale technologies in Africa.

Its factors of production include tropical agricultural inputs and manual labour.

Its capital requirement for operation is low unless for large-scale production, with some of the capital being freely available and collectable by labour.

The knowledge requirement for operation is relatively low.

The embeddedness of the technology is high; the banana contains the chemical technology in it and the grower and harvester do not have to know and implement every detail. The operational skills are disembedded.

The geographic location of the technology source is local.

The protection on intellectual property is non-existent.

The costs of knowledge transfer is low for the banana itself; operational skills are also relatively inexpensive to transfer.

The social factors influencing the choice to grow and collect bananas may include the relatively low risk of production and its historical acceptance. I am uncertain of the role of social factors, however, for reasons of my own lack of knowledge, and because other constraints such as finance might be directing choices more than social factors.

Thursday, 28 May 2009

Teachers imparting ideology

There is a recent research paper (available here) on the role of foreign education in promoting or reducing democracy in a student's home country. The paper finds that students travelling to democratic countries for education is often followed by increased democracy at home, and the paper uses various analytical tests to show that a forward causal link is a strong candidate for explaining the results. The results indicate that students travelling to a less democratic country often leads to reduced democracy at home.

The change in democracy is presumably only part of the influence exerted by the host country on the source country. Other influences may relate to social norms or political allegiances. The author presents examples of where powerful countries have set up educational exchanges with the explicit aim of ideological promotion, often by changing the views of future political leaders. I think it may encourage cynicism by students if they and all their classmates are from “strategically important” countries.

I do not know whether students are affected by the teaching or the general experience of spending time in a country. Two possible mechanisms are broad ideological influence or by technological training (students return home knowing more about a political system and they want to apply something they know about rather than something they do not). If the latter mechanism is the most important, then teaching may be more important than general influence since many or most teachers are appointed as technocrats rather than ideologues. Many teachers including me would be uneasy with a role of ideological promotion for the state.

"Education as ideological alignment" is one possible reason why states sponsor international students, but there are other possibilities. Foreign students have been found to be associated with increased economic innovation in their destination country (described here). This explanation seems to be equally compatible with a self-serving view of country educational funding. A country may also have humanitarian motivations.

Institutions as technologies based on people

Much recent research has emphasised the role of institutions in promoting various forms of economic development. Institutions include organizations like governments and companies, but also abstract guides to human interaction such as laws and moral codes.

Institutions describe something that is intangible, relates to human interaction, and does not have an obvious causal effect on the outcomes with which it is linked. So modelling them can be difficult. An approach used in the research paper here (on page 11) is to attribute to them one of the characteristics of technologies (themselves definable as the information about and organization of resources used to produce goods). The approach presents institutions as containing embedded knowledge, so that people do not have to find out how to operate with other people every time they want to interact.

The approach may be extended to identify institutions more closely as technologies with people as the resources. It is appealing because it gives a precise representation of the quite loose idea of institutions, and institutional analysts can use the tools of technological analysis.

Monday, 25 May 2009

Free market research on opinions in African countries

I am looking at why certain countries accept technologies more readily than others. There is research saying that education is important for some sorts of technology and other research finding that distance from the source of the technology is also important. One candidate factor influencing acceptance is the general attitudes of people in a country. If people in a country do not like risk much, then they might be more reluctant to accept new technologies. If people do not value healthcare much, then trying to sell a home medical kit might be more successful in a more health-conscious country.

The World Values Survey is helpful for assessing attitudes. The survey is available here, based mainly on interviews with statistically selected respondents from what I can see. There is information on South Africa, Ghana, Egypt, Burkina Faso, Ethiopia, Mali, Rwanda, and Zambia from the most recent survey and on Tanzania from the previous survey, so it is helpful for assessing different opinions particularly in the Saharan West African and Southern Great Lakes regions. As a few examples, 44.6 percent of Malians say they strongly agree that they would give up part of their income for the environment while only 12.7 percent of Zambians strongly agree. 36.1 percent of Ghanaians say they completely agree that science and technology are making lives healthier, easier, and more comfortable compared with 16.8 percent of Rwandans. 38.2 percent of Ethiopians say they read a book in the week before the survey, compared with 21.0 percent of South Africans.

When does a new product displace an old one?

Suppose someone has invented a new product that is better than one already in the market. Will people start buying the new product instead of the old one?

It depends on what is meant by better. If “better” means that whenever the new product has the same price as the old one it has a higher quality, or alternatively whenever it has the same quality as the old good it is cheaper, then it will displace the old good completely when purchases occur.

“Same quality” or “higher quality” are precise in their meaning here too. Same means identical in every way, while higher quality means better in every way. Quality includes consumer knowledge of the good, so that the two products are equally well known and trusted. For a new product, the level of consumer awareness may be lower than for the old product.

If the new product is not as good as or better than the old one in every way, then there will be some criteria other than price determining the choices of consumers in favour of the old product. The products are not perfect substitutes, so the old product and the new product will both be bought in the market with relative proportions depending on how many points the new product is better than the old one.

Mathematically inclined readers may find the model used in some economics papers informative. The choice between goods is modelled by a constant elasticity of substitution between the old and new goods, which is combined with Shephard’s lemma to calculate a demand for each type of good. The specification is helpful in connecting the demands for new goods domestically and internationally since the same type of choices drive both.

Saturday, 23 May 2009

Does economic growth create goods from nothing or take them from someone else?

An economy grows at a certain percent per year; the extra or better quality goods must have come from somewhere. If the goods cannot be newly created by some method, they must have been taken from someone else, so that an economy’s growth comes at the cost of someone else’s impoverishment.

An economy can be considered as a machine powered by energy from the Sun and other raw energy sources. The machine produces goods. Some of the goods are broken down (consumption). Some of the goods are put aside to make new goods (accumulation), so that the future stream of new goods is higher. Other goods are used to try different arrangements of the machine’s mechanics to see if the different arrangements increase the stream of new goods (technological improvement).

These last two steps create new goods from the raw energy sources, not from nothing. When they lead to economic growth, what is measured is the extent to which rearrangements of resources in the last year have caused the energy to be used in a particular way. Growth can be viewed as a measure of change in use, not of creation.

How productive is a machine?

Productivity in economics measures the amount of output for a certain amount of input. So a machine may have a productivity of, say, two kettles or televisions for every machine employed.

Companies and people are not born tied to a fixed machine that they can never exchange; generally, they can buy and sell machines at market. So the value of the input machine can be compared to the value of the output. The two kettles might be worth $50 and the machine might be worth $40, so we can measure the productivity as $10. There are a variety of ways of measuring productivity in numbers, such as saying it is $50 divided by $40 instead of the $50 minus $40 here.

The value of the machine is decided in market exchanges, and hence so is the productivity of the machine. It depends not just on the cost of raw materials used to make the machine, but also on the market power of the buyers and sellers. So a machine in a monopoly market may be less productive than the same machine if the market was competitive. The cost of the outputs is the same, but the cost of the inputs is different.

Thursday, 21 May 2009

World and DR Congo book publications

I looked again at the book publication data mentioned in my post-before-last, and drew up a table of world publications from 1995 and compared them with DR Congo publications from the same year. The table is below.

The Congolese publications are in subjects involving much less physical capital or formal education in their preparation than the world publications, and consequently leading to less transfer of the knowledge about subjects involving them. I am not sure how much of the division is due to supply (writing interest and expertise) or demand (reader interest) in the DR Congo.

Sunday, 17 May 2009

Is mining investment the right sort of FDI?

Many governments look to promote foreign direct investment in their countries. It could create employment while it is there. However, if its only contribution to the economy is a temporary inflow of cash and it does not leave any long term benefits, then perhaps it is not leading to any real development. A potential long term benefit of fdi is through the skills imparted to employees and local partners, and exposure to foreign methods and technologies. When the fdi stops, these benefits may remain. They may even spread further through the economy while the fdi is still present.

Economists have looked at what sort of companies bring such long term benefits. One prominent paper finds that Western business research and development - a major source of commercial innovation - is highest in the chemical, machinery and electrical machinery, and transportation industries. Looking at European companies with many patents (the data is here - the database is very large), we can find that the most patents are owned by Siemens, Philips, BASF, and Bosch. These companies are prominent in the industries just mentioned.

Africa gets much of its fdi in the form of mining investment, and the extracted minerals are often processed outside the continent. So it may not be exposed to advanced technologies through its inward fdi. In that sense, its fdi is the wrong sort. The problem is compounded by the high capital to labour ratios in some forms of mining, since contact with the local population and opportunites for learning and technology diffusion are limited.

A caution is that concentrating too much on patent ownership may be misleading. Some forms of technology are not patentable, such as industrial organisation techniques and these can be present in any company inside or outside the high-research industries. They may diffuse outside the company. Some companies invest in schools and similar projects as local goodwill, and smart governments can maximise local involvement in projects. Mining investment may not be the best form of fdi for generating long term development, but its benefits do not have to stop when the minerals run out either.

What type of books are being published in Africa?

UNESCO published figures on book publications by country and theme, with the most recent data from the late 1990s. The data is over at the UN data site here.

A dozen African countries are included. For those countries, I rearranged the data a bit to list what types of books were published most in the countries. It is a crude indicator of national interest in books; many books may be imported, but publishers have spotted a strong interest in a particular type. The results are shown below. A few small-publishing countries emphasised literature, while the other nine led on scientific publications.

Thursday, 14 May 2009

Africa's consumption distribution by country

Courtesy of the African Economic Outlook website here, the table below shows the consumption share of the richest ten percent of the population in African countries. Southern African and English speaking countries tend to be among the more unequal, while Francophone countries tend to be more equal. English speaking countries worldwide are often less concerned with inequality; I am not aware of any English speaking country which has had a communist government, for example. If the link is robust, it may be due to colonial heritage or possibly post-colonial links with other Anglophone countries.

Annual AfDB and ADF meeting, and a compact online African database

The African Development Bank and African Development Fund annual Board of Governors meeting is taking place yesterday and today. There are already dozens of press releases, reports, interviews, and speeches on the AfDB website here. With luck, there will be a condensed final report produced for general consumption.

There's a new website just launched to complement the release of the 2009 African Economic Outlook report. It has a convenient page of economic and related demographic data here.

Sunday, 10 May 2009

New medicines cost tonnes, take ages, and there are hardly any of them

I was reading through the literature on technology and came across some papers on research and development of new medicines. I had a general idea that they were expensive, but the papers here and here present data that has new medicines produced in the United States costing almost a billion dollars each, taking over a decade, and numbering only a few dozen per year.

Many anti-malarial medicines are chemically similar to quinine, and it is feasible that new medicines could be found by changing chemical structures by relatively small amounts. In this case, it would be easy to produce new medicines based on old ones. If such small modifications account for many of the new medicines, then the number of genuinely new medicine pathways is tiny. Some new medicines are derived from plants, so the rate of finding new laboratory-derived pathways seems tiny.

Thursday, 7 May 2009

Applications for MA Economic and Governmental Reform at the University of Westminster

Here's a reminder about applying and getting funded for the Master's course in Economic and Governmental Reform at the University of Westminster here in London, starting in October. I teach the economics modules on the course. African applicants are most welcome and have good performance records.

Our students have come from government, private sector, and NGO backgrounds, and after the course have moved on to senior positions in Africa, Europe, and beyond. Living in London itself offers many attractions and opportunities, of course.

Information on the course and obtaining funding is on its website (here). The course, like most in the UK, is expensive (GBP10,000), so students usually have applied for scholarships first. Course requirements are listed on its website, although there is some flexibility. Unavoidable ones are:

1. Reasonable English (or things won't make sense)
2. A first degree with some relevance to the topic, or a degree and relevant work experience
3. Willingness to work hard (or things will not be enjoyable)

Good luck with application.

Is the patent information enough for technology diffusion?

I have posted links to developed country patent offices in recent posts. The motivation is that African entrepreneurs and inventors can build on the inventions in developed countries. My last post pointed out one limitation of doing so, namely that there may be adaption costs if the technology is not well suited for Africa. Another set of costs arises not from adaption, but just adoption, so that even if the technology was ideal for Africa's circumstances there would still be expenses to learning and using it.

A technology's tacitness can raise adoption expenses. It means that the information used in the technology is not written down. A stricter definition is that the information could not possibly be written down. In the first definition could fall difficulties such as an incomplete patent specification; in the second definition lies problems such as the practical inability in a reasonable time period to fully specify all the operational requirements of a system. Imagine a machine construction guide - it may never state that a power supply is required, rather being taken for granted, but if someone has never built a machine before they might wonder why their machine doesn't work despite being perfectly built according to the patent.

A second problem belonging to the "can't be written down" tacitness is that even if someone knows exactly a design they may not be able to implement it well without extensive practice. An example might be in language learning; knowing the words and grammar is great, but it can still take forever just to say the most basic sentences. Technological fitness through repetition as well as design information is required to implement the design.

Problems like the ones described tend to reduce with experience: an inventor can fill in the holes in a patent specification; they know what the designer was thinking; they are already well practised in related technologies. The importance of experience explains why research and development even in developing countries can be important in promoting growth. The idea is not to produce technologies specific for the most advanced countries, but rather to understand foreign technologies and get them to work as well as possible locally.

Japanese patent website, and African sites

The Japanese patent website can be found here. After the PAJ link is clicked, people can search for Japanese designs in whatever object interests them. I have been highlighting waterproof construction designs because of an emerging market in the Great Lakes region, and listed links to US and EU designs for waterproof tents in recent posts.

I looked at the Kenyan patent office website, the South African patent office website, and a pan-African body (here). None appeared to put designs online free of charge (I didn't look really thoroughly so may be mistaken), although it might be possible to get them for a fee from the South African website.

What might be helpful for economic development is free public online information for pan-African patents. If countries are concerned that public information combined with weak property rights would be a discouragement to innovation in their countries, then they could restrict the patents to those which are expired or aging (say three years old or more) or those where the patent holder is willing to allow public disclosure (which would admittedly probably be less commercially valuable).

Easy access to African specific patents could allow local innovators to build on knowledge which is specific to African circumstances. Inventions from developed countries may require considerable reengineering to work in African circumstances (for example, waterproof designs for a North European summer may not be robust enough in a tropical storm). There is also a demonstration effect - if a design has been shown to work in an African country, then entrepreneurs may be more willing to risk investment in it than if it had only worked on the other side of the world. Inventors working even with highly generic products in highly similar developed countries often build on local innovation more than foreign innovation, and choose to adapt foreign technology further for local circumstances. A pan-African database would mean that not every entrepreneur has to incur the same possibly elavated costs of adaptation from developed to local contexts.

Tuesday, 5 May 2009

Comparing the growth effects of openness

Openness (equal to a country's imports plus exports, all divided by GDP) is often included in growth regressions. Other determinant variables may describe internal features of the economy, such as the saving rate, education, institutional quality, and political stability. Sometimes the determinant variables may include foreign direct investment and other measures of external exposure, but by no means always.

External exposure brings some disadvantages and some advantages for a country. The advantages include more optimal allocation of global short-term resources (but usually only short-term, not long-term, as a country may get stuck in producing cash crops, for example, rather than industrialising), and international technology transfers. By technology transfer, I mean use in production of information about methods or input combinations, where the information has been taken from abroad. Estimates on the growth importance of transfer vary, from quite important to really important (explaining over half of growth in some countries).

Openness is only one possible way of getting technology from overseas. Foreign direct investment, licensing, joint ventures, student and teacher movement, expatriate return, seminars and the internet are all possible sources of information about it, and may be more effective. Moreover, studies indicate that imports may be more effective for transferring technology than exports, and capital goods imports may be better than consumer goods imports. So having openness as the measure of external exposure will capture the (perhaps dominant form of) external influence on growth only partially and with considerable error.

The other variables in the regressions will pick up the effect of international exposure if they are correlated with the exposure, and correlation will often occur if people and companies in the economy try to maximise their income at all, since people are likely to adapt to encourage transfer if they think it is advantageous. So the effect of, for example, education or institutional form will be overestimated. Misspecification or incomplete specification increases the chance of interpretational error in estimations where internal factors seem to matter much more than external relations. On theoretical grounds, we may question this outcome, as it does not seem believable that so many countries are suddenly getting their internal arrangements far better than almost every other country in history, as measured by their economic growth.

Sunday, 3 May 2009

Hunger map

I came across an interactive map on the UN Food and Agricultural Organization website, here. It shows global rates of hunger by country since 1970. In 1970, countries in Northern Africa were hungriest. Today, countries in Southern Africa are hungriest. The highest rates of hunger are correlated with wars.