Technology and technological progress are central to economic and social well-being. The creation and diffusion of goods and services are critical drivers of economic growth, rising incomes, social progress, and medical progress. Global Economic Prospects 2008: Technology Diffusion in the Developing World examines the state of technology in developing countries and the pace with which it has advanced since the early 1990s.

It reveals both encouraging and cautionary trends. On the one hand, the pace of technological progress in developing countries has been much faster than in high-income countries—reflecting increased exposure to foreign technology as a result of linkages with high-skilled diasporas and the opening of these countries to international trade and foreign direct investment.

On the other hand, the technology gap remains large, and the domestic factors that determine how quickly technologies spread within developing countries often stymie progress, especially among low-income countries. Repeating the rapid progress of this past decade will be difficult and may require that basic technological literacy is improved further; that government efforts to adapt and disseminate preexisting technologies throughout the economy are strengthened; and that regulatory regimes are modified to encourage business innovation.

This year’s Global Economic Prospects comes on the heels of an extended period of robust growth and a 15-year period of strong performance in much of the developing world that has contributed to substantial declines in global poverty. While high oil prices and heightened market volatility may signal a coming pause in this process, over the longer term sustained technological progress should continue to push back poverty.

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“Rapid technological progress in developing countries has been key to the reduction of poverty in recent decades. While the integration of global markets has played and will continue to play a vital role in this, future success will increasingly depend on strengthening technical competencies and the business environment for innovative firms in developing countries.”

— Graeme Wheeler
Managing Director, The World Bank

Forward:

EACH YEAR, Global Economic Prospects explores critical “here and now” economic developments that are relevant to low- and middle-income countries. Past editions have examined the economic implications of international and regional trade liberalization, and migration and remittances. Last year’s report looked at the recent acceleration in growth among developing countries and its sustainability over the longer term.

This year we take a closer look at technology, a critical determinant of sustainable growth and poverty reduction. We do so by directly measuring the extent to which countries use technological inputs (including scientific technologies embodied in goods and services and business processes) and produce technological outputs. The report also examines trends in the major channels through which technology is transmitted internationally, and in the country-specific factors that determine how well it is absorbed domestically.

Encouragingly, this Global Economic Prospects finds that, since the early 1990s, technological progress in both low- and middle-income countries has increased more rapidly than in high-income countries. As a result, the level of technology used in developing countries is catching up with high-income countries. However, the technology gap between them remains wide. Globalization has underpinned much of the recent progress by exposing developing countries to foreign technology through imports of high-tech consumption, intermediate and capital goods. Countries have also benefited from rising levels of foreign direct investment that often brings with it knowledge of important process technologies and foreign markets. Finally, highly skilled international diasporas are exposing developing countries to technology, both through the trade and marketing contacts that they provide to their countrymen and through the return of former émigrés. [...]

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Rapid technological progress in developing countries has helped to raise incomes and reduce the share of people living in absolute poverty from 29 percent in 1990 to 18 percent in 2004. Despite these gains, the technology gap between rich and poor countries remains enormous, and the capacity of developing economies to adopt new technology remains weak, says Global Economic Prospects 2008.

“Technological progress increased 40 to 60 percent faster in developing countries than in rich countries between the early 1990s and early 2000s,” said Andrew Burns, Lead Economist and main author of the report. “Nevertheless, developing countries have a long way to go, given that the level of technology that they use is only one quarter of that employed in high-income countries.”

Subtitled “Technology Diffusion in the Developing World,” the World Bank report notes that recent progress reflects increased exposure to foreign technologies. As a share of GDP, high-tech imports and foreign direct investment levels have doubled since the early 1990s.

“Rising trade and investment contacts with high-income countries, often facilitated by migrant groups, have been central to technological progress in developing countries.” said Uri Dadush, Director, World Bank Development Prospects Group. “However, openness alone is not enough. To continue catching up, countries need to strengthen educational achievement, governance, basic infrastructures, and links to migrant groups.”

The report stresses that the weak diffusion of technology within countries holds back overall technological achievement in many countries. Thus, while major centers and leading firms in Brazil, India and China may operate close to the global technological frontier, most firms in these countries operate at less than a fifth of the top productivity level.

According to the report, improving capacity to absorb foreign technology is critical in low-income countries, as well as in those middle-income countries that have exploited low-wage comparative advantages rather than strengthened domestic competencies.

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This Global Economic Prospects (GEP) is being released during a period of increased uncertainty following four years of record growth in developing countries, and a 15-year period of steady declines in poverty. Global growth slowed modestly in 2007, coming at 3.5 percent after 3.9 percent in 2006. Most of the slowdown was due to weaker growth in high-income countries.

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