The Intensive Margin of Technology Adoption
Executive Summary — To anyone who observes the world, it's pretty clear that a country's poverty level is at least somewhat related to its adoption of new technologies. Historically, though, this fact has been difficult to quantify. Harvard Business School professor Diego Comin and MIT researcher Martí Mestieri are developing a model to analyze the relationship between economic growth and technology adoption. In their paper, they discuss both "extensive" margins (the length of time it takes a country to adopt any given new technology) and "intensive" margins (the number of technology units--smartphones, PCs, etc.--that the country adopts). Key concepts include:
- The role of technology is crucial to understanding per capita income differences.
- Differences just in the intensive margin of technology adoption account for some 45 percent of cross-country differences in per capita income.
- As a whole, technology adoption seems to account for 70 percent of differences in cross-country per capita income.
We present a tractable model for analyzing the relationship between economic growth and the intensive and extensive margins of technology adoption. The "extensive" margin refers to the timing of a country's adoption of a new technology; the "intensive" margin refers to how many units are adopted (for a given size economy). At the aggregate level, our model is isomorphic to a neoclassical growth model, while at the microeconomic level it features adoption of firms at the extensive and the intensive margin. Based on a data set of 15 technologies and 166 countries our estimations of the model yield four main findings: (1) there are large cross-country differences in the intensive margin of adoption; (2) differences in the intensive margin vary substantially across technologies; (3) the cross-country dispersion of adoption lags has declined over time, while the cross-country dispersion in the intensive margin has not; and (4) the cross-country variation in the intensive margin of adoption accounts for more than 40% of the variation in income per capita.