If Technology Has Arrived Everywhere, Why Has Income Diverged?
Executive Summary — To respond to the question posed in the title of their paper, the authors explore one potential driver—the dynamics of technology adoption. Using a stylized model of adoption that accounts for individual technologies, the authors identify two margins of adoption: adoption lags and penetration rates. Analyzing a panel of adoption lags and penetration rates for 25 technologies and 132 countries, they show that adoption lags have converged across countries over the last 200 years, while penetration rates have diverged. Feeding these patterns into the aggregate representation of their model economy, they next evaluate the effects of cross-country evolution of adoption patterns on the cross-country evolution of income growth. The paper's main finding is that the evolution of adoption patterns accounts for the vast majority of cross-country evolution of income growth for many country groupings. Therefore, adoption dynamics are at the core of cross-country differences in per-capita income over the last 200 years, a phenomenon known as the Great Divergence. Key concepts include:
- This paper explores whether the dynamics of technology can help us account for the cross-country evolution of productivity and income growth over the last 200 years.
- Findings show that there has been convergence in adoption lags between rich and poor countries, while there has been divergence in penetration rates.
We study the lags with which new technologies are adopted across countries and their long-run penetration rates once they are adopted. Using data from the last two centuries, we document two new facts: there has been convergence in adoption lags between rich and poor countries, while there has been divergence in penetration rates. Using a model of adoption and growth, we show that these changes in the pattern of technology diffusion account for 80% of the Great Income Divergence between rich and poor countries since 1820.