Why Are Developing Countries So Slow in Adopting New Technologies? The Aggregate and Complementary Impact of Micro Distortions
This paper explores how developmental and regulatory impediments to resource reallocation limit the ability of developing countries to adopt new technologies. An efficient economy innovates quickly; but when the economy is unable to redeploy resour...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100803112829 http://hdl.handle.net/10986/3877 |
| Summary: | This paper explores how developmental
and regulatory impediments to resource reallocation limit
the ability of developing countries to adopt new
technologies. An efficient economy innovates quickly; but
when the economy is unable to redeploy resources away from
inefficient uses, technological adoption becomes sluggish
and growth is reduced. The authors build a model of
heterogeneous firms and idiosyncratic shocks, where
aggregate long-run growth occurs through the adoption of new
technologies, which in turn requires firm destruction and
rebirth. After calibrating the model to leading and
developing economies, the authors analyze its dynamics in
order to clarify the mechanism based on firm renewal. The
analysis uses the steady-state characteristics of the model
to provide an explanation for long-run output gaps between
the United States and a large sample of developing
countries. For the median less-developed country in the
sample, the model accounts for more than 50 percent of the
income gap with respect to the United States, with 60
percent of the simulated gap being explained by
developmental and regulatory barriers taken individually,
and 40 percent by their interaction. Thus, the benefits from
market reforms are largely diminished if developmental and
regulatory distortions to firm dynamics are not jointly addressed. |
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