Financing New Technology

According to neoclassical, long-run macroeconomic growth models, technological innovation is a major source of growth in per capita income. Technological innovation increases productivity, long-run per capita income, and savings—which in turn raise the level of capital accumulation and investment. The result is economic growth.

Unfortunately for developing countries, access to new technology is not cheap. Traditionally, the relatively capital-intensive new technology developed in industrial countries has been either protected by copyrights or patents or was financially impossible to access. Thus, the only technology available for developing countries was the old technology produced in industrial countries, and accessing it still meant borrowing from official or private sources. For a while, therefore, technology transfer—adapting the relatively old Western technology and adjusting it to the skill level of the ...