Back to Index

Global economic prospects 2008: Technology diffusion in the developing world
The World Bank
January 09, 2008

View this article on the World Bank website

Download Acrobat PDF chapters of this document
- Overview (457KB)
- Chapter 1: Prospects for Developing Countries (1.22MB)
- Chapter 2: Technology and Technological Diffusion in Developing Countries (1.48MB)
- Chapter 3: Determinants of Technological Diffusion: Recent Trends and Prospects (962KB)
- Regional Economic Prospects (1.07MB)
If you do not have the free Acrobat reader on your computer, download it from the Adobe website by clicking here.

This edition of Global Economic Prospects is being released during a period of increased uncertainty following four years of record growth in developing countries. In addition to examining economic prospects over the near and longer term, it takes an in-depth look at the current level of and recent trends in technological achievement and the main factors that determine the extent to which developing countries succeed in implementing foreign technologies.

Notwithstanding the financial turmoil provoked by a reassessment of risks in the U.S. mortgage market, and despite large losses in some financial markets, exposure to assetbacked securities appears to be broadly based. Losses so far have been manageable, although credit conditions have tightened. For developing economies, sovereign risk premiums have increased but remain low by historical standards. Equity values, exchange rates, and commodity prices have become more volatile, and the vulnerability of countries with large current account deficits or pegged exchange rates has become more visible. Against this background, global growth slowed modestly in 2007, coming in at 3.6 percent after a strong 3.9 percent in 2006.

Most of the slowdown was attributable to weaker growth in high-income countries. Growth in developing economies was a robust 7.4 percent, broadly unchanged from 2006. This strong performance in the developing countries has offset somewhat the slowdown in U.S. domestic demand that started with the unwinding of the housing bubble early in 2006. During 2007, developing countries accounted for more than half the growth in world imports, contributing-along with the depreciation of the dollar-to strong net exports for the United States and furthering the reduction in global imbalances.

Global growth in 2008 should moderate to 3.3 percent, as the robust expansion in developing countries partly compensates for weaker results in high-income countries. World output should pick up in 2009, expanding by 3.6 percent, as the U.S. economy regains momentum.

Several serious downside risks cast a shadow over this soft landing for the global economy. External demand for the products of developing countries could weaken much more sharply and commodity prices could decline if the faltering U.S. housing market or further financial turmoil were to push the United States into a recession. Alternatively, monetary authorities might overreact to the current climate of uncertainty and overstimulate the economy. This would be particularly dangerous for developing countries if the bulk of the resulting liquidity were to move into rapidly growing developing regions, provoking the same kind of overinvestment conditions that arose in the U.S. housing market.

Prospects for the U.S. dollar represent an additional risk factor. A recession in the United States or an excessive easing of U.S. monetary policy could contribute to further sharp declines in the dollar. A weaker dollar would benefit developing countries with dollar debt, but impose losses on those that hold dollar denominated assets. It would hurt the competitiveness of firms exporting to the United States
(and those producing close substitutes for U.S. imports), while benefiting countries with currencies pegged to the dollar-at least temporarily.

However, the main impact of a precipitous decline of the dollar would likely derive from the increased uncertainty and financial-market volatility it would provoke, which would increase trading costs, and spreads on developing country debt-resulting in weaker export and investment growth throughout the global economy.

Even should such risks not materialize, several developing countries may be quite vulnerable to sudden adjustments in financial markets. Most exposed are those countries that combine large current account deficits with pegged exchange rates and with increasing domestic inflation. Also at risk are countries whose domestic banking sectors have balance sheets characterized by large currency mismatches.

Technological achievement and diffusion in developing countries

The special topic of this edition of Global Economic Prospects is technology and its diffusion within the developing world. Much of the economic and social progress of the past few centuries has been due to technology.

Technology has been central to both economic growth and many elements of social welfare that are only partly captured by standard measures of gross domestic product (GDP), including health, education, and gender equality. As measured by total factor productivity, it explains much of the differences in both the level and rate of growth of incomes across countries (Easterly and Levine 2001; Hall and Jones 1999; King and Levine 1994).

And, looking forward, it is expected to play a central role in meeting the environmental and climate-change challenges of the remainder of this century. The private sector and the efficient functioning of markets are key to technological progress. At the same time, the efficient delivery of socially relevant technological goods and services depends on the direct contribution of nonmarket actors, including governments, nongovernmental organizations, and international organizations. Of course, policy also supports technological progress by facilitating the smooth operation of markets, by ensuring the acquisition of technological competencies by the general population, and by providing the physical infrastructure that is often a necessary complement to technologically sophisticated activities. Active measures to promote technology diffusion and strengthen the linkages between firms and research and development (R&D) agencies are also vital.

In exploring technological achievement and diffusion, this report adopts a broad definition of technology and technological progress, one that encompasses the techniques (including the way the production process is organized) by which goods and services are produced, marketed, and made available to the public. Understood in this way, technological progress at the national level can occur through scientific innovation and invention; through the adoption and adaptation of preexisting, but new-to-the-market, technologies; and through the spread of technologies across firms, individuals, and the public sector within the country.

The following discussion traces the structure of the overall report, which in chapter 2 explores the level of-and recent trends in- technological achievement, as well as the process by which technology diffuses between and within countries. Chapter 3 concentrates on the process by which countries absorb foreign technology, both the mechanisms through which they are exposed to foreign technologies and the domestic factors that dictate how successfully they absorb those technologies.

Although the chapter identifies a number of important, policy-relevant trends, and it explores their policy implications, it leaves to future work a more normative analysis of the policies that developing countries should follow to maximize the development benefits of technological progress.

Download full document

Please credit www.kubatana.net if you make use of material from this website. This work is licensed under a Creative Commons License unless stated otherwise.

TOP