A tale of two technological capabilities: economic growth revisited from a technological capability transition perspective

This study revisits economic growth from the perspective of technological capability types and the transition related to growth slowdowns in middle-income countries. The objectives of this study are twofold. First, we reveal the development pattern of national technological capabilities in the global market by means of two capability indices. Second, we investigate the heterogeneous contribution of these indices to economic growth by income level. To this end, we first propose an analytical framework that evaluates two types of technological capabilities, that is, implementation capability and design capability, developed by different knowledge types and learning modes. Using the calculated indices with a sample of 42 countries from 1996 to 2016, we conduct econometric analysis via Granger causality testing between the two capability indices, a dynamic panel regression of the global connections on the capability development, and a panel quantile regression on income per capita. Our results show that: (1) the sequential pattern of national technological capability development from the implementation-based to the design-based; (2) a positive influence of higher global connections on the capability development; and (3) an increasing contribution of design capability towards economic growth but a decreasing contribution of implementation capability when approaching the higher quantiles of the income level. Finally, our study’s implications concern the process of sustained economic growth and the fundamental cause of the middle-income trap—specifically, the need for capability transition.