Economix Blog: Technology as a Driver of Growth (or Not)

Last week, while I was doing reporting for my column about the economic impact of digital technologies, I had a chat with Astro Teller. Mr. Teller runs Google X — Google’s incubator of crazy futuristic technologies like self-driving cars. He has little patience for techno-skepticism. Who cares if digital services don’t show up much in official statistics of gross domestic product? If you want to measure the economic importance of the Internet, he suggested, just try to imagine what would happen to the economy if the Internet were to vanish tomorrow.

This may not be the best measure of technology’s contribution to social welfare. But it raises a crucial point. The impact of a technological innovation depends on how deeply it embeds itself in everything we do.

Earlier this month, a couple of economists at the Harvard Business School and the Toulouse School of Economics in France produced a paper asking “If Technology Has Arrived Everywhere, Why Has Income Diverged?” Economic prosperity, they noted, is ultimately driven by technological innovation. So if technologies today spread much more quickly than they used to from rich to poor countries, how come the income divide between rich and poor nations remains so large?

It took 119 years, on average, for the spindle to spread outside of Europe to the poorer reaches of the late-18th-century world, according to the authors. The Internet encircled the globe in seven. One might expect that this would have helped developing countries catch up with the richest nations at the frontier of technology

The reason that this did not happen, the authors propose, is that despite spreading faster, new technologies have not embedded themselves as deeply, measured by their prevalence, relative to the size of the economy. “The divergence in the degree of assimilation of technologies started about 100 years ago,” observed Diego Comin of Harvard Business School, one of the authors.

Spindles eventually became as prevalent in poor countries as they were earlier in rich ones. By contrast, according to the economists’ model, PCs in developing nations will achieve only 40 percent of the penetration that they attained in industrialized countries. Startlingly, they estimated that the Internet’s economic footprint in poor countries will reach only about 4 percent of its penetration in rich industrial nations.

The economists aren’t quite sure why this is the case. Professor Comin suggests it might be that societies that were the most innovative inventors 100 years ago became much better of assimilating technologies; more creative at figuring out new ways to take advantage of innovations across the economy.

In any event, according to the researchers, the shallower penetration of new technologies in the third world explains of their economic lag: “changes in the pattern of technology diffusion account for 80 percent of the Great Income Divergence between rich and poor countries since 1820.”

We may not directly see the economic impact of the information-technology revolution. But countries where it does not spread, it seems, will remain poor. That seems like a pretty big deal.

Article source: http://economix.blogs.nytimes.com/2013/05/10/technology-as-a-driver-of-growth-or-not/?partner=rss&emc=rss