Catching up through technology absorption

Contents

Introduction

Definitions

Can Africa learn from Korea?

Requirements for the Absorption of Technologies
Access to the technology
Ability to absorb technology

What can the government do?
Building up a proper education system
The right Trade Policy
Technology Policy

Conclusion

References:

Introduction

A country´s economic performance and wealth is clearly linked to the degree of the country´s industrialization process. This process is in turn connected with the diffusion of technology within and into the country (Clark et al. 1993). In the special case of developing countries the next step of industrialization must not even be an innovative one because the technology already exists in developed countries (Henry/Kneller/Milner 2009). Additionally the absorption of newer technologies should even become easier the bigger the lag to the technical frontier becomes. Hence, it has to be questioned why many developing countries are not able to efficiently overtake and use technologies from developed countries to reduce their lack of development although those technologies seem to be so easily available. The expansion of information and communication technology should make the access to them even easier.

Another important point is that reaching a certain level of industrialization enables a country´s industry to be innovative itself by adjusting existing technologies or by creating new connections between different “old” technologies. In this way further development could be reached like the economic success stories of East Asian countries, e.g. South Korea, show. It has to be questioned which lessons today´s developing countries mainly in Africa can learn from these countries while keeping in mind that they do have other specific preconditions.

This essay is structured as follows. It starts with outlining some necessary definitions. It is followed by an observation which requirements developing countries need to successfully absorb technologies. Afterwards it provides a look at the special case of South Korea and its development that shows how technology absorption could look like in a developing country. Then the essay continues with a guideline for a government´s trade and technology policy before it ends with some final conclusions.

Definitions

One of the major concerns of this essay is technology. Technology may be defined as a set of “skills, knowledge and procedures for making, using and doing useful things” (Ahrens 2002). So the term technology implies technical knowledge (about machines and procedures) as well as institutional arrangements and skills to efficiently transform inputs into outputs. Hence, technology cannot be “easily obtained and costlessly applied” (Sharp/Pavitt 1993). In contrast it is often complex, multi-dimensional, interdependent with other technologies and large parts of it are tacit or firm-specific knowledge.

An innovation is a new technology. In some cases it is important to differentiate between product and process innovation. In both cases a new technology is introduced. The main difference is the potential buyer group. In process innovations new capital goods are provided for other industries to advance their (production) processes. In contrary , product innovations are intended for households (Lissoni/Metcalfe 1993).

A distinction is made between the diffusion and the adoption of a technology. Diffusion takes place on a macroeconomic level. It refers to the aggregate behaviour of a sample of firms and the spread of the technology between different firms. In contrast, Adoption focuses on the microeconomic, inter-firm level. Here the firm´s decision process is regarded to explain the time lag of the introduction of the technology in the single firm to its availability in the industry or country (Lissoni/Metcalfe 1993). Another interesting point is the time the single firm needs to adopt a new technology on the intra-firm level. This time lag results from the reformation of the firm´s organization, assets and processes in order to be able to use the innovation (Lissoni/Metcalfe 1993). Innovation diffusion in a country is furthermore characterized by its speed. Hence, it can be considered that one industry in a specific country absorbed a technology when a certain share of the firms within that industry completely adopted the technology (da Silveira 2001).

This paper is especially concerned about developing countries so a short characterization of this status in contrast to developed countries is needed. There is no single definition of the term that is internationally recognized and this paper is not intended to provide one. Anyway in the following a developing country will be seen as a country with a low level of GDP per capita and a low level of industrialization (IMF 2009).

Requirements for the Absorption of Technologies

In the neoclassical view a technology is just an information. So it is freely available, it diffuses instantly through an industry and also across countries´ borders and its positive effects can also be used immediately. Obviously this is not the case in reality. For each of the previous mentioned steps there are certain requirements a country has to fulfil.

In the special case of a developing country we can assume that the new technology was invented in a more developed country. So the first requirement for the successful absorption of the technology by the developing country is that the holder of the technology is willing to export it. We can assume that this is the case as far as the holder gains benefits from the spreading of the technology either by selling the observed good, complementary services or by harvesting licensing fees.

More important for a developing country are the other two requirements. First the access to the technology and second the ability to use the technology and gain benefits from it.

Access to the Technology

A country or its industries are just able to absorb a new technology when they have access to it. In particular there have to be channels through which the technology can diffuse into the country. The most important of these channels are trade, migration and foreign investments.

The first and maybe the most important one of these channels is trade. Through trade a technology can be spread across countries and across sectors within countries. The inventing company or a reseller exports the good, e.g. a machine tool, that implies the new technology. In this regard it is especially important to have a look at capital goods which can directly increase the productivity of the country´s industries (Henry/Kneller/Milner 2009). However, in reality there are lots of restrictions to trade that either decrease the benefits from trade so that trade becomes unattractive or increase the uncertainty accompanying trade. Possible restrictions are obviously high transport costs, uncertainty or tariffs but also a lack of intellectual property rights in the receiving country so that the innovating company is afraid of imitations and limits its trade.

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