Global Competitiveness Report 2015 Home

Technological adoption

In today’s globalized world, technology is increasingly essential for firms to compete and prosper. The technological adoption category assesses the agility with which an economy adopts existing technologies. Compared with the current GCI, the updated pillar does not include measures of ICT use. This concept is now part of the infrastructure and connectivity pillar.85

Technology is understood as a broad concept covering not only products such as machinery, equipment, and material, but also processes and organization methods, all linked by the common factor of enhancing efficiency in production. In addition, technology adoption contributes to a conducive innovation ecosystem (see below).

The literature identifies two sources of technology adoption: local firms can invest to bring in technology from abroad or from other sectors or companies, and a country can exploit spillovers from the foreign direct investment (FDI) of international companies.

Turning first to investment by local firms, the wider the gap between foreign technology and the technology already available in the country—and the longer the gap between invention and adoption—the more difficult it is to import new technologies. Disparity in these barriers to technology adoption accounts for a large portion of income disparity across countries.86

Such barriers are not merely financial. Research shows that countries’ endowment in human capital, institutions, geographic distance, and openness to trade can affect the extent of these barriers,87 requiring specific organizational adjustments, management skills, and time-consuming accumulation of technical knowledge. There is a role for investments in human capital to overcome these barriers, and for local and industry-level policies to promote technology adoption.

As for FDI, a large theoretical and empirical literature shows spillovers on growth in the recipient country through three channels: contagion effects, imitation, and movement of labor.88 Contagion occurs through personal contacts between domestic and foreign firms; the transfer of knowledge is proportional to the presence of foreign investment in the industry and to the relative backwardness of the country.89 Imitation happens when domestic firms copy foreign production, starting at a lower level and gradually reducing the technological gap.90 Finally, foreign firms may transfer know-how by training their local workers.91

Recent research has tested these theories empirically and found that, although FDI fosters growth in general, the net effect may depend on the conditions of the local economy. Such conditions include the availability of good suppliers, local human capital, financial development, the sector involved, and the capacity of international companies to work with local suppliers.92

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85 In the current GCI, two ICT measures appear in both the infrastructure and technological readiness pillars and each occurrence is assigned half-weight. In an effort to streamline and simplify the framework, the updated GCI will not use half-weight indicators.
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86 Parente and Prescott 1994; Barro and Sala-i-Martín 1997; Comin and Hobijn 2010.
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87 See, for example, Comin and Hobijn 2004. See also the human capital, institutions, and openness sections for a more complete review of these factors. Since they are already taken into account in other pillars of the Index, they are not considered in this context.
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88 The literature is divided between research focusing on spillovers from horizontal FDI (intra-industry, between foreign firms and their local competitors); and research studying spillovers from vertical FDI (inter-industry, among foreign firms and their local buyers and suppliers).
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89 See Findlay 1978. Another type of contagion occurs in vertical FDI through the relationship between international firm and local suppliers (Rodriguez-Clare 1996).
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90 Glass and Saggi 1998.
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91 Glass and Saggi 1999.
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92 For example, Potter et al. 2003 find that buyer-supplier linkages are important for productivity spillovers. Borensztein et al. 1998 and Xu 2000 show that FDI affects a host country’s technology and growth only in the presence of a sufficient stock of human capital, while Alfaro et al. 2004, Durham 2004, and Hermes and Lensink 2003 provide evidence that well-developed financial markets are necessary to gain significantly from FDI.
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