This paper explores how developmental and regulatory impediments to resource reallocation limit the ability of developing countries to adopt new technologies. An efficient economy innovates quickly; but when the economy is unable to redeploy resources away from inefficient uses, technological adoption becomes sluggish and growth is reduced. The authors build a model of heterogeneous firms and idiosyncratic shocks, where aggregate long-run growth occurs through the adoption of new technologies, which in turn requires firm destruction and rebirth. After calibrating the model to leading and developing economies, the authors analyze its dynamics in order to clarify the mechanism based on firm renewal. The analysis uses the steady-state characteristics of the model to provide an explanation for long-run output gaps between the United States and a large sample of developing countries. For the median less-developed country in the sample, the model accounts for more than 50 percent of the income gap with respect to the United States, with 60 percent of the simulated gap being explained by developmental and regulatory barriers taken individually, and 40 percent by their interaction. Thus, the benefits from market reforms are largely diminished if developmental and regulatory distortions to firm dynamics are not jointly addressed.
Details
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Author
Bergoeing, Raphael Loayza, Norman V. Piguillem, Facundo
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Document Date
2010/08/01
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Document Type
Policy Research Working Paper
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Report Number
WPS5393
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Volume No
1
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Total Volume(s)
1
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Country
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Region
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Disclosure Date
2010/08/30
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Disclosure Status
Disclosed
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Doc Name
Why are developing countries so slow in adopting new technologies ? the aggregate and complementary impact of micro distortions
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Keywords
regulatory freedom;data on personal computer;personal computers per 1,000 people;recovery rate;technological innovation;Technological Adoption;entry barrier;regulation of business activity;marginal utility of leisure;Macroeconomics and Growth;Macroeconomics & Growth;negative real interest rate;output gap;average schooling year;idiosyncratic productivity shock;level of governance;explanatory variable;general equilibrium model;interest rate control;share of labor;regulatory barrier;aggregate production function;capital depreciation rate;degree of monopoly;misallocation of resources;total factor productivity;lack of education;denial of access;long run growth;labor market regulation;ownership of bank;domestic credit market;form of corruption;government budget constraint;per capita term;difference in income;gdp growth rate;parameter value;cost of capital;price of capital;aggregate economic development;rate of growth;cross-country regression analysis;quality of public;Rule of Law;Production Possibility Frontier;sample standard deviation;reallocation of resource;method of estimation;impulse response;human capital;steady state;firm dynamic;firm exit;idiosyncratic shock;aggregate growth;developmental characteristic;productivity level;firm entry;aggregate productivity;point estimate;productivity growth;adoption process;income gap;output level;entry cost;plant level;technology adoption;market reform;initial investment;red tape;simple average;constant return;technology shock;internet usage;advanced technology;production process;technological frontier;creative destruction;technological progress;production good;regulatory obstacles;individual effect;random walk;cross-country differences;
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Citation
Bergoeing, Raphael Loayza, Norman V. Piguillem, Facundo
Why are developing countries so slow in adopting new technologies the aggregate and complementary impact of micro distortions (English). Policy Research working paper ; no. WPS 5393 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/879761468328214173/Why-are-developing-countries-so-slow-in-adopting-new-technologies-the-aggregate-and-complementary-impact-of-micro-distortions