Why are Developing Countries so Slow in Adopting New Technologies? The Aggregate and Complementary Impact of Micro Distortions

42 Pages Posted: 20 Apr 2016

See all articles by Raphael Bergoeing

Raphael Bergoeing

affiliation not provided to SSRN

Norman Loayza

World Bank - Research Department

Facundo Piguillem

Einaudi Institute for Economics and Finance (EIEF)

Date Written: August 1, 2010

Abstract

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.

Keywords: Economic Theory & Research, Emerging Markets, E-Business, Technology Industry, Political Economy

Suggested Citation

Bergoeing, Raphael and Loayza, Norman and Piguillem, Facundo, Why are Developing Countries so Slow in Adopting New Technologies? The Aggregate and Complementary Impact of Micro Distortions (August 1, 2010). World Bank Policy Research Working Paper No. 5393. Available at SSRN: https://ssrn.com/abstract=1653197

Raphael Bergoeing (Contact Author)

affiliation not provided to SSRN ( email )

Norman Loayza

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Facundo Piguillem

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Sallustiana, 62
Rome, 00187
Italy

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