• 30 Jul 2012
  • Research & Ideas

How Technology Adoption Affects Global Economies

In a series of research papers, Associate Professor Diego A. Comin and colleagues investigated the relationship between technology adoption and per capita income. They found that the rate at which nations adopted new tools hundreds of years ago strongly affects whether those nations are rich or poor today.
by Carmen Nobel

It's not often that a best seller inspires academic research. If anything, it's usually the other way around. But Harvard Business School Associate Professor Diego A. Comin was motivated by reading Guns, Germs, and Steel, Jared Diamond's 1998 Pulitzer Prize-winning book that explores the historical hegemony of Western Europe through the lens of technology and geography.

“What we showed is that past technology determines current technology.”

"It was a nice story, but the evidence was mostly anecdotal," Comin says. "I thought it would be very natural to test that story with my data. I wanted to look at how technology interacts with geographical diffusion."

In a series of research papers, Comin and colleagues investigated the relationship between a country's historical rate of technology adoption and its per capita income. It stands to reason that adopting a new technology would increase a nation's wealth. After all, new tools—from the telegraph to the PC—enable expedited production of goods and services, eventually facilitating economic growth. Technological tools also improve a country's perceived standard of living, as in the case of the light bulb or the cell phone.

But Comin's research is striking in what it shows about the historical reach of technology adoption. According to his findings, the rate at which countries adopted new tools hundreds of years ago strongly affects whether they are rich or poor today. Comin also has begun to uncover why there's still such a disparity in the wealth of nations, in spite of the fact that technology adoption lags have shortened dramatically in the past few decades.

In their paper An Exploration of Technology Diffusion, Comin and fellow researcher Bart Hobijn described a scientific model to track the effects of technology adoption, testing the model on 15 technologies in 166 countries from 1820 to 2003. They covered major technologies related to transportation (from steamships to airplanes), telecommunication (from the telegraph to the cell phone), IT (the PC and the Internet), health care (MRI scanners), steel (namely tonnage produced using blast oxygen furnaces), and electricity. For each technology, they compared when it was invented with when it was adopted by each country: for instance, the automobile was invented in 1885, but didn't reach many nations until the latter half of the twentieth century.

Technology adoption lags account for at least 25 percent of cross-country per capita income differences.According to the data, countries have adopted new technologies an average of 47 years after they are invented, with the United States and the United Kingdom leading the way in adoption rates over most of the past two centuries. More importantly, adoption lags account for at least 25 percent of cross-country per capita income differences: in short, the longer the lag in technology adoption for any given nation, the lower the per capita income.

Was The Wealth Of Nations Determined In 1000 Bc?

Further research showed that a region's economic performance in the twenty-first century is directly related to its technology adoption activity as far back as AD 1500. Comin, William Easterly, and Erick Gong explain these findings in their paper Was the Wealth of Nations Determined in 1000 BC?

To prepare the paper, the team compiled a series of data sets on the history of technology spanning some 2,500 years prior to the era of colonization. They measured the level of technology adoption for more than 100 countries in three periods: 1000 BC (pack animals, vehicles, and pottery, for example), AD 0, and AD 1500. They also tracked technology adoption in the modern era.

The researchers wanted to determine whether there was an association between a country's ancient historical technology adoption rate and its adoption of technology in the twenty-first century, reasoning that this could help determine whether ancient technology adoption predicted current per capita income. (To correlate the geographical borders of modern-day nations with the cultures and civilizations of the ancient time periods, the team used maps from the 2006 edition of The World Factbook, published by the Central Intelligence Agency.)

There appeared to be no significant correlation between technology adoption in 1000 BC or AD 0 with the level of technology adoption in modern times. However, the paper states, the data set from AD 1500 turned out to be "an excellent predictor of per capita income today."

According to the research, when a geographical area had a high technology adoption rate in AD 1500, then the corresponding modern-day nation tended to adopt technologies shortly after their invention. However, areas with slow adoption rates in AD 1500 evolved into nations that didn't adopt new technologies until several decades after their inventions.

"What we showed is that past technology determines current technology. The dynamics of technology adoption are very persistent," Comin says.

Extensive Vs. Intensive Margins

While adoption lags have diminished extensively across the globe, they have not diminished intensively.While those findings were significant, Comin was puzzled by one apparent paradox related to the fact that technology adoption lags have diminished dramatically in recent decades, across the globe. For example, the United States launched the Adams Power Station at Niagara Falls in 1895, only a few years after the invention of a three-phase power system. India, meanwhile, didn't adopt electricity until the 1900s. But when it comes to modern technology, the lags tend to be almost identical: both the United States and India adopted cell phone technology in the 1980s. However, the difference in per capita income between those nations remains huge: in 2011, the United States had a per capita GDP of around $48,000, while India's was the equivalent of US$3,600.

So why doesn't the shrinking gap in technology adoption lags naturally lead to a smaller disparity between per capita incomes? Comin says the answer lies in the difference between "extensive" and "intensive" margins. In his aforementioned research, technology adoption was measured according to extensive margins; that is, how long it takes a country to adopt a technology at all. But that research did not account for intensive margins; that is, the extent to which a technology is adopted by the nation as a whole.

For instance, the extensive margin of cell phones would measure the gap between the invention of the cell phone and the date when cell phone technology first entered a country. But the intensive margin would measure the number of cell phones in a country relative to that country's population. When applicable, the intensive margin also takes into account the amount of output associated with a new technology, such as the tons of steel produced in blast oxygen furnaces in any given country.

Comin focused on intensive margins in his working paper "The Intensive Margin of Technology Adoption," coauthored with Martí Mestieri. Studying the same 15 technologies and 166 countries from Comin's earlier research, they found that while adoption lags have diminished extensively across the globe, they have not diminished intensively. In other words, while a new technology may reach a third-world country faster than ever before, it's not necessarily reaching the majority of people in that country.

Significantly, they found that differences in the intensive margin of technology adoption account for some 45 percent of cross-country differences in per capita income. "This intensive margin has not converged at the same rate of extensive margins," Comin says. "In fact, it has diverged."

Taken together, the results of Comin's research with Mestieri and the results of his research with Hobijn, Easterly, and Gong suggest that up to 70 percent of differences in cross-country per capita income can be explained by differences in technology adoption.

Comin reports that future research will elaborate on how intensive adoption margins affect growth"We're getting closer at understanding the drivers of technology and its effects on the wealth of nations," he says.

About the Author

Carmen Nobel is the senior editor of HBS Working Knowledge.
    • David Bley
    • Former Engineer, N/A
    I would suggest that not all new technology has equal ability to improve per capita income. Cell phones can be used to improve productivity, but they also can be just a diversion. Their adoption could improve productivity, have no effect or reduce productivity. Some technologies have a much more predictable positive impact on income, for example the internal combustion engine.
    • Rob Houck
    • Partner, Eaton & Van Winkle
    So why DO some societies adopt more quickly and completely and could THAT be the reason for the progress and not the technology? I will now re-read this interesting post and perhaps find the answer, or more questions. Either way, thanks!
    • Graeme Harrison
    • Sydney, Australia
    Great analysis.
    Clearly there are differences between societies in their preparedness to embrace newer technologies. And that is worth exploring.

    However, there is also a 'problem' not adequately disclosed in the paper, impacting the implied 'causality'. There is clearly a 'positive feedback loop', whereby richer countries (eg OECD member states) can easily afford to purchase new technology, whereas some developing countries can not so easily afford that same technology.

    The graphs make it look like richer countries are wealthier BECAUSE they adopted newer technologies, whereas in many instances they adopted newer technologies fastest because they could AFFORD the technology. So technology adoption is closely correlated with wealth, but this does not really answer the question of whether that wealth was caused by technology adoption. Arguably Norwegians and Saudis are wealthy because of petro-dollars, not their PCs or mobile phones!

    As a small test, it would be great to examine separately a technology that spread across the world that was very cheap to implement... The differences in its adoption would highlight each society's 'preparedness to adopt' new technology, as opposed to 'being able to afford' a new technology.

    Alternatively, an 'intention to purchase' survey of North Africans, sub-Saharan Africans vs rural Chinese (say) for mobile phones, computers, tablets etc might be telling. Their keenness (if they had the money) might be good indicators for technological acceptance, factoring out the 'ability to purchase' issue. Similarly, their relative attitudes to children's education... as some traditional societies definitely hold their people back by holding negative attitudes to education.

    But I do not want to detract from the work - except suggesting that saying "is closely correlated with" might be more appropriate wording (less misleading) than "can be explained by" when elements are co-related, but without causality being proven.
    • Anonymous
    how does the Author account for mobile phone adoption in Africa? in South Africa alone 87% of the population have mobiles, yet the country's GDP still lags?
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited
    There is no denying the fact that technology is a boon. Innovations need to be tested for global usage and, if found suitable, adopted as early as possible. The long gap between invention and adoption is scary. Due to the continuous research and development going on much of the technology gets obsolete and the gestation period can obviously lead to the enormous loss of efficiency to laggards.
    Most of the research leading to development is centered in a few developed countries with sufficient resources. There are technology transfers no doubt but here too there are many countries which lack resources to avail these benefits. Also, culture and politics matter as countries may not be comfortable about attuning quickly to what is on offer.
    That over times those countries that adopted technologies faster than others became richer is not disputed.
    • Harsha Gunasena
    • Colombo, Sri Lanka
    Yes, an interesting analysis. Also affordability is contributing factor. We can analyze this further.
    In the countries where Gini Index is high, where there is unequal income distribution, there is a strong possibility that the intensive margin is low.
    Countries like Brazil and India where Gini Index is high scored low intensive margin, although they have adopted the technology earlier.
    Iran and Iraq are slow starters but their intensive margin is high. I suppose the Gini Index of these two countries is relatively low.
    • Anonymous
    Not in all cases that the willingness to embrace some of newly invented relevent technology is the major precitating factor for wealth disparity among nations. For example some countries in the middle east and asia has tremendous wealth no courtesy of their willingness to readily embrace newly invented technology but courtesy of their oil endowerment or oil economy. Although true nations that readily embrace newly invented technology are always ahead with respect to their GDP as evident in some countries like Great Britain and United states of America. This is evident as in these two countries of the world in the era of IT,tremendous amount wealth was made this period which incompasses the the totality of wealth made over the period of dark age,the age of rebirth of learning,industrial age.
    • Wayne Brewer
    It seems that technology would have a causal relationship with GDP, as this paper conculdes since technology's main purpose and reason for getting investment is productivity. The fact that the correlation is so long-lived would seem to indicate cultural factors are impacting technology adoption rates. Since adoption is a choice, could it be that cultures that are "freer" are the ones that adopt quicker? The data set should be available to do a regression.
    • diego comin
    • Assoc. professor, HBS
    Hi Graeme,
    This is an important point. clearly income matters for adoption. The method we have developed to estimate both margins filters away the effect of income on the demand for technology (or goods or services that embody it). In essence we do that by looking at how the demand for each specific technology changes over time as one country (say the US) gets richer.
    I hope this helps.
    • Griff Resor
    • President, Resor Associates
    I'd like to see research on how captial is accumulated and controlled in these same countries. It seems that if capital remains in the control of a few families (Mexico) that development is delayed. If no capital is accumulated (Cuba) development is also delayed. The US and Britain seem to have found a balance between accumulation and control that promotes innovation at a rapid pace.
    • Madhav
    • Manager
    The scatter of data on the parity plot is so great that trying to read any kind of correlation into it is wishful thinking and not conclusive proof!

    Here's what we know based on history - every civilization starting with the Mesopotamians to the Egyptians, Persians, Greeks, Romans, Arabs, Chinese, Indians ending around 1600 AD have all "led" the world in technology creation and development, only to falter because of invasions, complacency, natural disasters or other environmental factors.

    Going back to 1000 BC is pointless - the industrial revolution started in 1700 and from that point on, the west has clearly been in charge thanks to a combination of low population, homogenous societies and planned exploitation of the third world. So there is a lot more that factors into high per capita GDP than simply technology adoption!