The ability of a developing country to absorb and adapt foreign technologies depends on:
According to a World Bank report, Global Economic Prospects 2008: Technology Diffusion in the Developing World, the high-tech business processes, products and services that flow into a country through foreign trade, foreign direct investment (FDI), and contact with migrant populations living abroad offer the critical exposure required to jumpstart technological diffusion. The dismantling of trade barriers in many developing countries over the past 20 years has dramatically increased their exposure to foreign technologies. The ratio of high-tech imports to GDP in developing countries has more than doubled since 1994.
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The easing of restrictions on FDI has also contributed to technology diffusion within developing countries. FDI is a major source of process technology and “learning by doing” opportunities.
Over the past 15 years, FDI inflows to developing countries have nearly doubled as a percentage of GDP. FDI can also have significant spillover effects on domestically-owned enterprises. For example, leading call center companies from France and Spain have paved the way for domestically-owned and export-oriented call centers in Morocco and Tunisia.
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Substantial technology transfers also occur through contact with well-educated migrant populations living abroad.
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| These populations are an important resource for the home country—a “brain bank”—that contributes to technology transfers in many ways: By strengthening trade and investment linkages with more advanced economies through networks that provide access to technology and capital. By sending home remittances that contribute to domestic entrepreneurship and investment and to the expansion of banking and other financial services—themselves a critical enabling process technology By providing (on return to the home country) resources such as entrepreneurship, technology, marketing know-how, and investment capital.
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A good example of a returning migrant facilitating an important technology transfer is that of a Bangladeshi national working in the financial sector in the United States who returned home to help create the Grameen Phone network and make mobile phones available to poor people in remote villages (Sullivan 2007).
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However, exposure to new ideas and techniques is not enough to ensure that technology diffuses throughout the economy. Developing countries also need to have a strong capacity to absorb these ideas and techniques.
The main constraints on a country’s capacity to absorb technology are low technical literacy, uneven spread of older technologies, and low rural penetration of technologies.
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Technology diffusion depends on exposure to foreign technology and absorptive capacity The schematic diagram below shows, in very simple terms, the path of technology diffusion in a developing country. 
First, the country is first exposed to foreign technologies through foreign trade, foreign investment, or contact with the outside world (where national migrant populations can play a critical role). However, actual technological absorption depends on many domestic factors: - The macroeconomic conditions, governance structure, and investment climate
- The ability to master new technologies (basic and advanced technical literacy)
- The extent to which government policy and private institutions succeed in financing innovative firms
- The existence of proactive policies [link] to stimulate technology dissemination.
Finally, factors such as increasing returns to scale and spillover effects can (under certain conditions) increase the impact of the initial technology flows. |
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Full text of the report >>
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