Thursday, 24 July 2008

What sort of technology promotes growth best?

The theoretical and empirical finding in many works on growth and technology is that technology is most effective in promoting growth when it is suitable for the education level in a country. Thus, sending biotechnology laboratory equipment to a country where no-one can read is unlikely to promote growth as much as sending tractors. My own current studies find that if, in a particular year, a poor country has far fewer computers per person than other countries, their subsequent growth isn't affected much. On the other hand, if they have fewer telephones in a particular year, their future growth tends to be higher than if not, other things being equal. A plausible explanation is that technology catch-up is occurring; transfers of telephone technology are usually both feasible and suitable for the education levels in a poor country, whereas computer technology transfers are often just feasible.

But there is a caution on this interpretation. A gap affects growth through its influence on transfers. Thus the causality of effect on growth is gap-->transfers-->growth. The "inappropriate for education" hypothesis states that the second stage breaks down. But in low income countries, the first stage may also break down for certain goods, for a variety of reasons.

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