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Why Are Developing Countries so Slow in Adopting New Technologies?

Author

Listed:
  • Norman V. Loayza

    (The World Bank)

  • Facundo Piguillem

    (University of Minnesota)

  • Raphael Bergoeing

    (University of Chile)

Abstract

We analyze the process of technological innovation from the perspective of developing countries. Specifically, we explore how developmental and regulatory impediments to the process of resource reallocation and firm renewal limit the ability of developing countries to adopt new technologies. First, we study how the availability of personal computers and incidence of internet usage --as proxies for technological progress-- are related to regulatory freedom, governance, and schooling in a large cross-section of countries. We find that these characteristics not only exert an independent effect on technological innovation but also complement each other in this regard. We then build a stochastic general equilibrium model with heterogeneous firms subject to idiosyncratic shocks. Technological innovation is modeled as adoption of exogenous productivity shocks requiring firm renewal. Then, we analyze the independent impact of developmental and regulatory barriers and the complementarities of their effects on firm dynamics and the process of technological adoption. As expected, when the process of firm dynamics is undistorted, firms quickly incorporate the advances from shocks to the technological frontier. However, when government-imposed regulations deter the ongoing process of firm destruction and creation, then technological adoption becomes sluggish and the economy fails to generate enough growth to close the developed-developing gap.

Suggested Citation

  • Norman V. Loayza & Facundo Piguillem & Raphael Bergoeing, 2009. "Why Are Developing Countries so Slow in Adopting New Technologies?," 2009 Meeting Papers 779, Society for Economic Dynamics.
    • Handle: RePEc:red:sed009:779
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    References listed on IDEAS

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    1. Giuseppe Nicoletti & Stefano Scarpetta, 2003. "Regulation, productivity and growth: OECD evidence [‘A model of growth through creative destruction’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 18(36), pages 9-72.
    2. Gust, Christopher & Marquez, Jaime, 2004. "International comparisons of productivity growth: the role of information technology and regulatory practices," Labour Economics, Elsevier, vol. 11(1), pages 33-58, February.
    3. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
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    Cited by:

    1. Raphael Bergoeing Vela & Andrés Hernando & Andrea Repetto, 2010. "Market Reforms and Efficiency Gains in Chile," Estudios de Economia, University of Chile, Department of Economics, vol. 37(2 Year 20), pages 217-242, December.
    2. Raphael Bergoeing & Norman V. Loayza & Facundo Piguillem, 2011. "The Aggregate and Complementary Impact of Micro Distortions," 2011 Meeting Papers 1426, Society for Economic Dynamics.

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