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Technology diffusion, international integration and participation in developing economies - a review of major concepts and findings

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Abstract

Technical change is a major driving force for economic growth and development, thus technological change and innovations could be a powerful process that opens up opportunities to increase social welfare and benefits for societies. Whether opportunities turn into real benefits and allow for broad participation depends on a number of factors. In this contribution, we focus on three questions. First, what are the drivers of and the gains from technological change? Second, is there broad participation in the gains from technological change? Third, what mechanisms generate asymmetric participation or even non-participation? Reviewing the literature, we obtain two sets of answers, one set for developed countries (DCs) and one for less developed countries (LDCs). This contribution links up to the article Innovations, Growth and Participation in Advanced Economies - A Review of Major Concepts and Findings (published in the previous issue of IEEP) in which the process of innovation as well as the effects of technological change on growth and distribution has already been discussed for advanced economies. In this contribution, the focus is on developing economies. Technology that originated in DCs is transferred to LDCs. We identify the channels of technological transfer that allow LDCs to potentially participate in the benefits. Here, the development of the modern sector with links to international value chains plays a major role. However, global diffusion of technology and its gains are very diverse. Reasons for this diverse participation in gains include power structures in global value chains combined with an excess supply of labor and the malfunctioning of local governments and institutions in LDCs.

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Notes

  1. Milanovic combines individual or household surveys from across countries and seeks to make the data comparable. However, as survey methodologies and procedures vary, there are limitations.

  2. That the global income distribution is larger than that of any country should be almost by definition true.

  3. As we are describing a positive trajectory, “urban society” means a center as described in regional economics, i.e., a location providing infrastructure, public goods, public transportation, a modern industry and service sector with positive inter-firm and intra-sector externalities, sufficiently developed housing capacity, and a center of higher and highest education.

  4. For an account of different qualities in urbanization see, e.g., Gollin et al. (2016).

  5. Gries and Redlin (2011) support the idea of surplus labor as introduced by Lewis (1954) and show that labor is not a restricting growth factor in China.

  6. See section 2.2.2.

  7. See O’Donnell (2000) for an overview of literature on how multinational corporations are managed and a test of competing organizational theories.

  8. Kumar and Russell (2002) find that technology transfer is important for general efficiency gains, but that capital deepening is more important for convergence.

  9. See Görg and Greenaway (2004) for a literature survey on the spill-over effects of FDI.

  10. Borensztein et al. (1998) show in a theoretical model how FDI increases long-run growth rates by inducing technological diffusion from advanced economies to host countries. Xu (2000, p.491) finds that “the level of human capital is crucial for a country to benefit from technology spill-over of MNEs…. These results are also consistent with the findings of single country studies that the technology spill-over effects of MNEs are positive in advanced countries and insignificant in less developed countries”. Gries (2002) suggests a theoretical model of catching-up through technology transfer by FDIs.

  11. The dynamic regression results of Carkovic and Levine (2005) and the dynamic panel causality tests of Nair‐Reichert and Weinhold (2001) confirm a strong positive effect of inward FDI on GDP growth, while Hansen and Rand (2006) find a bidirectional causality between FDI and GDP levels in developing countries.

  12. Gries and Redlin (2011) also show that FDI into China create technology spillovers and is a part of the technological catching up process driven by international integration.

  13. Mazumdar (2001) find that while investment in domestically produced equipment reduces the growth rate in LDCs, investment in imported equipment increases it.

  14. Liu et al. (2001) test for causality between imports, exports, and FDI in China. They identify a causal cycle running from imports to FDI, from FDI to exports, and in turn from exports to imports.

  15. Trade as a vehicle for technology transfer is widely discussed in trade based endogenous trade theory originating with Helpman (1992), Grossman and Helpman (1990, 1991), Rivera-Batiz and Romer (1991), and Young (1991), Gries and Wigger (1993), Gries and Jungblut (1997), Edwards (1998), Greenaway et al. (2002); for a survey on trade and technology transfer, see Saggi (2002).

  16. Connolly (2003) shows that high technology imports positively affect the imitation process, especially in developing countries. Parente and Prescott (1994) suggest that trade may affect the growth of a country by lowering the barriers to technology adoption.

  17. Vandenbussche et al. (2006) also highlight the importance of human capital in the imitation process and argue that imitation costs decline with increasing human capital.

  18. See Wennekers and Thurik (1999) and Carree and Thurik (2003) for the link between entrepreneurship and economic growth.

  19. While some papers in this line of literature assume that innovation and imitation are performed by distinct firms, others assume that the two activities can be performed by the same firm.

  20. An example is given by Lee and Wie (2015).

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Authors and Affiliations

  1. University of Paderborn, International Growth and Business Cycle Theory, Warburger Strasse 100, 33098, Paderborn, Germany

    T. Gries, R. Grundmann, I. Palnau & M. Redlin

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  1. T. Gries
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  2. R. Grundmann
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  3. I. Palnau
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  4. M. Redlin
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Correspondence to T. Gries.

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Gries, T., Grundmann, R., Palnau, I. et al. Technology diffusion, international integration and participation in developing economies - a review of major concepts and findings. Int Econ Econ Policy 15, 215–253 (2018). https://doi.org/10.1007/s10368-017-0373-7

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