Technological catch-up happens through firms. Firms are the prime actor for adopting more sophisticated technologies to be applied in the production of goods and provision of services. While technology can improve economic welfare through different channels, it is primarily through the process of adoption by firms that most workers are affected. Workers can have access to higher-productivity jobs and countries can achieve higher prosperity through the adoption of more sophisticated technologies by firms.
Yet around the world, there is a large technological divide across firms. This divide is reflected in low productivity levels and a lack of better-quality jobs—particularly in developing countries, where the number of enterprises per worker relatively close to the forefront of technology sophistication (the technological frontier) is quite low and where firms are often confined to more rudimentary and less automated technologies. But this divide is not restricted to developing economies. In high-income countries the gap between frontier and laggard firms is also large and could potentially increase, which could, in turn, deepen challenges associated with income inequality across and within countries. The technological divide across firms also affects firms’ varying ability to cope with and bounce back from economic shocks, given that more capable and technologically sophisticated firms are also more resilient.
Bridging the technological divide is thus an imperative for development policies. Addressing some of the most relevant development challenges, from eradicating global poverty to promoting environmentally sustainable economic growth, will require technology upgrading of firms across the globe. The fact that most firms, particularly in developing countries, are far from the technological frontier suggests that this is not an easy challenge, but it also suggests that there are many opportunities for enhancing productivity and generating high-quality jobs in developing countries. To better understand this challenge at the firm level, we need to improve existing measures of technology and the body of data that can better reveal how firms make decisions and actually use (or do not use) technology in their operations. Armed with this understanding, policy makers and practitioners can design better policies and interventions to help firms adopt better and more sophisticated technologies.
This volume focuses on the adoption and use of technology by firms. Despite the centrality of technology adoption in the growth processes, current methods to measure technology at the level of the firm are not able to capture the ubiquity of technology use. This requires opening the “black box” of the firm and understanding how technologies are applied to the main tasks that firms need to carry out to produce and sell goods and services. To this end, this volume introduces a new methodology to measure technology at the level of business functions particular to the operations of that firm. This approach allows us to understand what technologies are used, how they are used, and why they were chosen by firms, which is a critical step to understand the process of technology diffusion and the overall technological progress of an economy.
The seventh volume in the World Bank Productivity Project is organized in three parts aiming to address to following questions:
- Where is the technology frontier and how far from it are firms in developing countries?
- What are the implications of the technological divide for jobs, growth, and resilience?
- What can countries do to bridge the technological divide?
It contributes to the literature in several ways:
- It describes a new methodology for measuring technology adoption at the firm level.
- It presents new evidence of the firm-level technological divide across different dimensions, such as countries, regions, sectors, firms, and business functions, using a novel data set covering firms in agriculture, manufacturing, and services from a representative set of countries.
- It provides new evidence on the effects of technology readiness on resilience.
- It offers novel findings regarding the limitations of improving access to digital infrastructure on technology adoption.
- It summarizes the tools available to policy makers aiming to promote technology upgrading.