Why are there huge differences in per-capita income between rich and poor countries? What role does technology play? How have differences in technology adoption emerged? Why are cross-country technology differences so persistent?
To answer these questions, I have assembled, together with Bart Hobijn, Eric Gong and Bill Easterly, several historical data sets on technology adoption and developed models that make possible to explore both (i) the drivers of technology diffusion and (ii) its consequences for aggregate productivity.
Cross country differences in technology adoption are even larger than cross-country differences in per-capita income (see 1, 2, 3). Differences in the lags with which new technologies arrive to countries explain 25% of cross-country variation in current per-capita income (see 4). However, cross-country differences in adoption lags have narrowed over the last 200 years. Why then has income diverged leading to the Great Divergence?
When it comes to technology diffusion, in addition to when technologies arrive to a country, it is critical to understand how much technologies penetrate once they have fully diffused. During the last 200 years, the gap in penetration rates between rich and poor countries have increased (see 5). This divergence in the intensity with which new technologies are used has impacted very significantly the evolution of the distribution of income across countries. Overall, changes in the processes of technology diffusion explain 80 percent of the Great income Divergence that has taken place over the last two centuries (see 5).
What explains then cross-country differences in technology adoption?
I have explored various factors that are relevant. These include lobbies, the development of financial markets, private savings, foreign efforts to transfer technological knowledge, the historical experience adopting similar technologies, and the adoption patterns in geographically-close countries.