The development of paper took 1,000 years to reach Europe from China. Today, in an increasingly globalized world, innovations are spreading faster and through more channels. In our work in Chapter 4 of the April 2018 World Economic Outlook (WEO), we delved deeper into how technology diffuses from one country to another. We found that the cross-border movement of knowledge and technology has accelerated due to globalization. Cross-Border Investments in Tech Startups have played a significant role in this process, facilitating the exchange of expertise and resources across nations. In emerging markets, technology transfer has helped boost innovation and productivity, even during the recent period when global productivity growth has been low.
Technological advancement was one of the main drivers of income and living standards growth. However, new knowledge and technologies do not necessarily emerge everywhere at the same time. Therefore, how technology spreads from one country to another is critical to understanding how global growth is generated and how it is distributed across countries. In fact, between 1995 and 2014, the United States, Japan, Germany, France, and the United Kingdom (the G-5) produced three-quarters of all worldwide patentable innovations.
Why Go Global?
In recent years, other large countries chief among them China and South Korea began to make substantial contributions to the global stock of knowledge, joining the five leading countries in several areas. Although this suggests the possibility that they will also be sources of new technologies in the future, during the period under analysis, the G-5 constituted the majority of the technological frontier. To track the flow of knowledge, in our study we assessed the extent to which countries cite innovations registered by technology leaders as prior knowledge in their patent applications.
The graph below represents the transfer of knowledge from one country to another through these linkages. Two features stand out. First, although in 1995 the United States, Europe, and Japan led the world in patent citations, China and Korea (which we collectively call “other Asian economies”) have been increasingly capitalizing on the world’s knowledge stock, as measured by the volume of patent citations. Second, in general, knowledge relationships have been fine-tuning over time both within regions (blue arrows) and across regions (blue arrows).
Opportunities Galore
Another indicator that could be used to measure the extent to which countries leverage external knowledge and which we also examine in our studyis the intensity of international trade with technological leaders. The growing intensity of global knowledge flows points to the significant benefits of globalization. While it has been widely criticized for its potential negative effects, our study shows that globalization has amplified the cross-border spillover of technology in two ways. First, globalization allows countries to more easily access external knowledge.
Second, it intensifies international competition a result, among other factors, of the emergence of new firms in emerging markets and this increases firms’ incentives to innovate and adopt technologies from abroad. The positive effect has been particularly pronounced for emerging market economies, which have increasingly taken advantage of foreign knowledge and technology to expand their innovation capacity and increase labor productivity.
Tackling the Challenges
Over the period 2004–2014, for example, knowledge inflows from technology-leading countries may have generated an increase in labor productivity of about 0.7 percentage points per year in an average domestic sector. This is equivalent to about 40 percent of the average productivity growth rate over the period under analysis. We find that one of the key reasons for the expansion of innovation capacity in these economies is their growing investment in global supply chains for multinational firms.
However, not all companies enjoy this benefit because multinationals sometimes reallocate part of their innovation activity to other parts of the international value chain. The increased transfer of knowledge and technology to emerging market economies has partly offset the effects of the recent slowdown in innovation at the technological frontier and has facilitated income convergence in many of these economies. Advanced economies, on the other hand, have been more affected by this slowdown. Finally, our analysis examines.
Conclusion
Throughout human history and development, technological and scientific progress has caused profound disruptions in the economy. In this regard, there is broad consensus in the academic literature regarding the unquestionable role played by ongoing innovation processes as drivers of technical progress in long-term economic growth and other spheres of human development. Thus, since the 1980s, the emergence of a scenario characterized by dynamic technological advancement, the entry of new and numerous competitors.
The globalization of trade, rapid knowledge renewal, and reduced product development times has forced companies to adapt to this process, thereby increasing their chances of long-term success. Likewise, information and communications technologies are having a significant and positive impact on the economies of countries and on the global economy in general. However, they pose the need for states and the productive and social sectors to adapt to a rapidly evolving reality.
