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