Sunday, 5 July 2009

How do new technologies get into a country?

New technologies may increase output using the same inputs as old technologies. Even if the technology's innovator is powerful in the market, it is probably unusual for them to have such strength that they can take all of the increased output as extra income rather than letting some of it pass to consumers or producers copying the technology. Thus, a developing country may benefit from adopting new technologies from rich countries.

The question is how the technologies get into the developing country. Three routes often examined in the academic literature are imports, exports, and foreign direct investment (for example described in the review here). Strong links with domestic technology have been found with imports from high technology countries, some links with foreign direct investment, and (so I've read, I haven't assessed it myself) few links with exports.

A candidate explanation for the results is that countries' technological improvement is based mainly on importing technological goods from abroad. In this explanation, there may be only a minor role for improved domestic technological expertise in increasing productivity. A alternative sub-explanation allows for increased expertise playing a bigger role, as domestic entrepreneurs study the imported technologies and learn from them. As a possible point against this alternative, several studies using patents have found that innovators tend to base their innovations much more on existing local technologies rather than foreign ones. It may be that local technologies are more suitable building blocks.

The explanation does not give much of a pivot for policymakers wanting to get their population understanding and innovating in new technologies. The explanation is qualified by more detailed evidence from the studies, and also by the broader observation that countries have often moved from lagging behind world leaders to become major innovators, including the United States and Japan. Research on what domestic qualities increase technological adoption indicates that education is important. Education plausibly has more impact on the ability to reverse engineer technologies and copy them than on the ability to use them when they are embedded in imported goods. Although the mechanisms for spread of abstract technological knowledge have not been investigated extensively, the importance of one of the determinants of their success suggests that they collectively are important. Future research may help to clarify how significant are the contributions of reverse engineering, student movement, examining patents and other publications, and personnel movement.

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