The integration of developing countries into world technology markets: cause or effect of total factor productivity?

Few, if any, studies have examined the dual relationships between integration of developing countries into world technology markets and total factor productivity. This study uses a panel of 18 emerging markets and another of 20 developing economies to examine the bidirectional causal relationships between the growth rates of low, medium, and high technology exports, which represent integration into the world technology markets, and total factor productivity growth rates or productivity. The study uses data from 1990 to 2019 and the Granger causality panel data approach. Our empirical results confirm the following: First, there is a dual relationship between integration into the three world technology markets and total factor productivity growth rates at the level of both panels. At the country level, integration into the three world technology markets is the cause of productivity growth in emerging markets, but not in developing economies. Moreover, integration into higher technology markets leads to productivity gains in more emerging markets than integration into lower technology markets. On the other hand, total factor productivity growth rates does not cause the integration of emerging and developing countries into the three world technology markets. This study has two important policy implications. First, policy makers in developing countries need to develop the external technology sectors as key instruments to increase domestic productivity. Second, the accumulation of knowledge and know-how, without using them to integrate into world markets, would have little or no impact on productivity or sustaining economic growth in developing countries.