The gap between technological progress in the high-income and low-income economies appears to be narrowing, says the World Economic Prospects 2008 report. But it adds that the technological gulf between rich and poor countries is “still very wide.” Yet the level of technology used in all countries has increased rapidly, according to the study. Actually, the rise was quicker in developing countries and quickest in low-income economies.
Of course, the fact of the matter is that the initial level of technology in lower-income countries is invariably much lower to begin with. Despite the recent rapid pace of technological progress and diffusion, the technology gap between high-income and developing countries remains wide, with developing countries employing only a quarter of the level of technology used in developed countries. In fact, the levels of technological achievement in high-income countries are more than twice those in upper-middle income countries. The latter group, in turn, has levels of achievement that are more than double those in low-income countries.
In tandem, technological achievement can also vary widely within economies and cross-country. The main cities and leading sectors often use more sophisticated technologies than the rest of the economy. The report notes that while the IT-enabled services sector in urban India employs “world-class technologies,” less than 10 percent of the country’s rural households have telephone access as of 2007. The figure may be a bit of an underestimate, given the increasing presence of phone boots in rural areas. But intra-country variances are real.
To take another example, in India most firms, especially small ones, tend to use low levels of technology, and only a few operate at or near the national technological frontier. Assuming that domestic skills were available to efficiently use the technologies employed at the national frontier, Indian GDP could be as much as 4.8 times higher, it has been noted in the report.
Ultimately, what matters most for technological achievement is the speed of diffusion economy wide. Now the relative efficiency with which a given economy produces goods and services using the different factors of production is called total factor productivity (TFP). Also, TFP is commonly seen as a measure of the technology of production and its rate of growth as an indicator of technical progress. Further, the figures for 2005 reveal that the average level of TFP in low-income countries was “only slightly” more than 5 percent of US levels.
However, the relationship between income growth, technological progress and capital accumulation is much “more complex,” than can be summed up in a ballpark number like TFP. Moreover, the contribution of technology to economic welfare is only imperfectly measured by its impact on growth and value-added. Yet technological progress in one sector can create new opportunities in other sectors. Besides, lower production costs can lead to whole new products or even entire sectors. Additionally, technology can yield quality improvements as well. So technology in this sense extends beyond engineering technology to include management techniques and learning by doing.
But while technological progress does generate substantial benefits and much productivity gains, it can also be disruptive. Its benefits may not necessarily be evenly distributed. Many studies cite the recent tendency for technological progress to benefit more skilled workers as a key source of the rise in earnings inequality. At the same time though, technical progress can be strongly pro-poor, say, when it comes to low-cost solutions in combating disease and storing and processing food. Still more important, the disruptive nature of technological progress can bring about beneficial effects by “spurring competition.” The easy availability of mobile phones has introduced an important element of competition and regular price discovery in many markets.
It is also an everyday fact in India that the diffusion of technologies has encouraged rapid growth in business services. The Internet, faster computing and reliable telecommunications have all combined to greatly expand the possibility of exporting high-value services and offshoring
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