In many ways, the problem of innovation ought to be harder to model than the problem of technology adoption.
Nevertheless, the literature on economic growth and development has made more progress on models of innovation, such as those we discussed in Chapters 13-15, than on models of technology diffusion.
This is in part because the process of technology adoption involves many challenging features. First, even within a single country, we observe considerable differences in the technologies used by different firms in the same narrowly- defined industry. Second and relatedly, it is difficult to explain how in the globalized world which we live in some countries may fail to import and use technologies that would significantly increase their productivity. In this chapter, we begin the study of these questions. Since potential barriers to technology adoption are intimately linked to the analysis of the political economy of growth, we will return to some of these themes in Part 8 of the book. For now the emphasis will be on how technological interdependencies change the mechanics of economic growth and can thus enrich our understanding of the potential sources of cross-country income differences and economic growth over time.I will first provide a brief overview of some of the empirical patterns pertaining to technology adoption and diffusion within countries and industries, and how this appears to be important for within-industry productivity differences. I will then turn to a benchmark model of world equilibrium with technology diffusion, which will provide a reduced-form model for analyzing the slow diffusion of technological know-how across countries. I will then enrich this model by incorporating investments in R&D and technology adoption. Next, I will discuss issues of appropriate technology, and finally, I will turn to the impact of contractual imperfections on technology adoption decisions. Throughout this chapter, the only interaction among the countries in the world will be through technological exchange, and there will be no international trade in assets or in commodities.
18.1.