Contents

Foreword xi
Acknowledgments xiii
Abbreviations xv
Overview 1
Technological achievement and diffusion in developing countries 2
Some policy directions 13
Note 15
References 15
Chapter 1 Prospects for Developing Countries 17
Growth outlook 17
Risks 18
Financial markets: Needed correction or major disruption? 18
Global growth 21
World trade 33
Inflation and commodity markets 36
Risks and uncertainties: Danger of a banking crisis and a U.S. recession 41
Long-term prospects and poverty forecasts 43
Notes 48
References 49
Chapter 2 Technology and Technological Diffusion in Developing Countries 51
The role of technology in development 53
Measuring technology in developing countries 58
Evaluating overall technological progress 78
Technological diffusion over the long term 87
Conclusion 92
Technical Annex: Construction of the summary indexes 92
Notes 99
References 101
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Contents
Chapter 3 Determinants of Technological Progress: Recent Trends and Prospects 105
Drivers of technological progress: A framework 107
External transmission channels 109
Nurturing technological adaptive capacity 127
Conclusion 150
Notes 153
References 156
Appendix: Regional Economic Prospects 165
East Asia and the Pacific 165
Europe and Central Asia 170
Latin America and the Caribbean 176
Middle East and North Africa 184
South Asia 189
Sub-Saharan Africa 193
Figures
1 Robust growth among developing countries should cushion the developed country
slowdown 2
2 Scientific innovation and invention is almost exclusively a high-income activity 3
3 Technological achievement: Converging, but the gap remains large 4
4 The penetration of older and more recent technologies depends on more
than income 5
5 Technological achievement tends to level off at different income levels in different
regions 6
6 Most technologies fail to penetrate deeply into developing economies 7
7 The urban–rural gap in telephone access in India is huge 7
8 Domestic absorptive capacity both conditions and attracts external flows 8
9 Developing countries’ trade in technology goods has risen 10
10 Macroeconomic stability has improved since the early 1990s 11
11 Literacy rates have increased in all regions 12
12 Developing regions have much poorer governance than do OECD countries 13
1.1 The perceived riskiness of high-yield corporate bonds increased more than that
of emerging market bonds 19
1.2 Emerging market asset sell-off more severe than during earlier periods of market
turbulence 19
1.3 Global equity markets fall, then recover led by emerging markets 20
1.4 A step-down in growth in 2008 21
1.5 Volatile patterns of growth among OECD countries 23
1.6 Tighter credit and weak housing yield slower U.S. growth 23
1.7 Robust growth in developing country industrial production 24
1.8 Developing growth retains strong momentum during the first half of 2007... 26
1.9 ...with growth moderating through 2009 26
1.10 East Asia now accounts for one-quarter of China’s imports 27
1.11 External positions vary widely across Europe and Central Asia 27
1.12 Growth eases in 2007 for the Latin America and Caribbean region 28
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1.13 Continued oil revenue gains support growth among Middle East and North Africa oil
exporters 30
1.14 South Asia growth is slowing as the Indian rupee appreciates 32
1.15 Oil exporters drive 2007 growth results for Sub-Saharan Africa 32
1.16 Weak U.S. growth reduces demand for developing country exports 35
1.17 Export opportunities for high-income countries 35
1.18 U.S. current account narrows over 2007 and is likely to continue doing so 36
1.19 Inflationary pressures are rising in the Middle East and North Africa and
Sub-Saharan Africa 37
1.20 Inflation is broadly stable elsewhere, though at high levels 37
1.21 Commodity prices continued gains through 2007 led by metals 38
1.22 Copper, zinc, and aluminum prices sharply affected by China 38
1.23 Growth in the world’s demand for oil slows 39
1.24 OPEC reduces output to support prices 39
1.25 Agricultural prices surge over 2006–07 40
1.26 A rise in food prices, led by a ramp-up of the prices of fats, oils, and grains 40
1.27 Long-term growth, 1980–2030 44
1.28 Declining capital-led growth for developed countries, 2002–30 45
1.29 Sustained high productivity growth for developing countries 45
2.1 Patent activity is rising in middle-income countries 61
2.2 Electrical consumption varies markedly even at similar income levels 63
2.3 Rail and road densities rise with income and population density 65
2.4 Telephone densities are highly correlated with income, but air
transport is not 66
2.5 The incidence of Internet use varies widely across countries 73
2.6 Logistics performance in the world 77
2.7 Distribution of technological achievement by dimension 80
2.8 Increase in summary technological achievement subindexes, 1990s–2000s 82
2.9 Alternative summary indexes of technological achievement 83
2.10 Technological achievement rises with income levels 84
2.11 Comparison of levels of technological achievement, early 1990s and
early 2000s 85
3.1 Domestic absorptive capacity both conditions and attracts external flows 108
3.2 Rising share of high-tech imports 112
3.3 Exports of low-, medium-, and high-technology goods 114
3.4 Share of foreign affiliates in business R&D expenditure 117
3.5 Licensing payments have risen sharply 121
3.6 The brain drain is a severe problem in a number of small countries 123
3.7 Share of Ph.D. students still living in the United States five years
after graduation 124
3.8 High-skilled emigrants are disproportionately represented in the diaspora 124
3.9 Most developing countries have increased their exposure to external
technology 128
3.10 Number of countries in conflict worldwide 129
3.11 Efficiency of contract enforcement 132
3.12 Developing country governance scores relative to OECD average 132
3.13 Regional averages of six governance indicators 133
3.14 Per capita incomes have accelerated in recent years 134
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3.15 Except in Sub-Saharan Africa, life expectancy is improving 134
3.16 Educational expenditures have risen in some regions 137
3.17 Many developing country students fail to meet literacy standards 138
3.18 Levels of intellectual property protection 146
3.19 Level of and recent changes in technological absorptive capacity 149
A1 East Asian growth moves up in 2007 165
A2 Except for China, inflation is now stabilizing across East Asia 166
A3 Performance improves for East Asian countries other than China 169
A4 Mixed growth outturns across Europe and Central Asia 171
A5 External positions vary widely across Europe and Central Asia 171
A6 Growth in Europe and Central Asia eases into 2009 173
A7 Growth outturns were mixed across Latin America in 2007 176
A8 Latin American inflation eases over the last 15 years 177
A9 Latin America and the Caribbean sovereign bond spreads decline, then
increase again 177
A10 Growth in Latin America and the Caribbean eases into 2009 179
A11 Financial test: Credit 183
A12 Exchange rate policy dilemmas? 183
A13 Export product (value) concentration is increasing 183
A14 Export market (value) concentration is falling 184
A15 Growth in Middle East and North Africa picks up 184
A16 Hydrocarbon exports continue to rise on higher prices, modest volume gains 186
A17 Tourism and remittances offset widening trade deficits for Maghreb and
Mashreq countries 187
A18 Middle East and North Africa equities rebound from the mid-2007 slump 189
A19 South Asian economies ease into 2007 190
A20 Monetary policy is tightened in response to a buildup in inflation 190
A21 Growth in Sub-Saharan Africa has accelerated markedly. . . 194
A22 . . . reaching a 35-year high in oil-exporting countries . . . 198
A23 . . . and a 10-year high in oil-importing countries 199
A24 Contributions of investment and consumption have increased 199
Tables
1.1 Gross capital flows to developing countries, 2005–07 20
1.2 The global outlook in summary, 2005–09 22
1.3 Recent economic indicators, developing regions, 2005–07 25
1.4 Developments and prospects for world trade and payments 34
1.5 Poverty in developing countries by region, selected years 46
2.1 Disparity among TFP levels remains wide 54
2.2 Scientific and innovative outputs 61
2.3 Indicators of the diffusion of older technologies 64
2.4 Affordability of fixed-line phones falls rapidly with lower incomes 67
2.5 Immunization rates lag significantly in South Asia and Sub-Saharan Africa 68
2.6 Diffusion of both water and sanitation technology is low in rural areas 69
2.7 Diffusion of recent technologies 72
2.8 Share of high-tech products in total exports 73
2.9 The quality of logistics services in 2005 varies by income 77
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2.10 Indicators included in summary indexes of technological achievement 79
2.11 Technological achievement in developing countries relative to that in high-income
countries 81
2.12 Increase in technological achievement in developing countries relative to that in
high-income countries 81
2.13 Overall technological progress in absolute and relative terms 86
2.14 Successful diffusion has accelerated 88
2.15 The pace at which technology diffuses has picked up among successful adaptors 89
2.16 Slow diffusion means that many developing countries never reach the 25 or 50 percent
threshold 90
A2.1 Indicators used to calculate the summary indexes and overall index related to
technological achievement 95
A2.2 Indicators used to calculate the summary indexes and overall index of technological
absorptive capacity 96
A2.3 Share of total variance explained by principal components, technological achievement
index 96
A2.4 Share of total variance explained by principal components, technological absorptive
capacity index 96
A2.5 Share of total variance explained by principal components for each subgroup of
indicators 97
A2.6 Factor loadings and variable weights for technological achievement
subgroups 98
A2.7 Factor loadings and variable weights for technological absorptive capacity
subgroups 98
A2.8 Share of total variance explained by main principal components of
technological achievement and technological absorptive capacity
using the sub-indexes 99
A2.9 Factor loadings and variable weights obtained from second-stage principal
components analysis (2000–03) 99
3.1 Trade in technology goods has increased in developing countries 111
3.2 Foreign direct investment as a percent of GDP 116
3.3 Foreign direct investment as a percent of fixed capital formation 116
3.4 Selected purchases of high-tech firms by companies in developing countries,
early 2000s 121
3.5 Increases in exposure to external technologies index, 1990s to 2000s 129
3.6 Macroeconomic stability has improved in developing countries 130
3.7 The regulatory burden is heavier in developing countries than in the OECD 131
3.8 Educational attainment indicators 135
3.9 Relatively high youth literacy rates 136
3.10 Weak financial intermediation hinders technology in developing countries 139
3.11 R&D intensities have increased 141
3.12 Private-public sector R&D 141
A1 East Asia and Pacific forecast summary 166
A2 East Asia and Pacific country forecasts 168
A3 Europe and Central Asia forecast summary 170
A4 Europe and Central Asia country forecasts 174
A5 Latin America and the Caribbean forecast summary 179
A6 Latin America and the Caribbean country forecasts 180
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A7 Middle East and North Africa forecast summary 185
A8 Middle East and North Africa country forecasts 188
A9 South Asia forecast summary 192
A10 South Asia country forecasts 192
A11 Sub-Saharan Africa forecast summary 194
A12 Sub-Saharan Africa country forecasts 195
Boxes
1 Summary of empirical results 14
1.1 Developing country exports in the wake of the removal of barriers to
Chinese exports 31
1.2 Biofuels 41
1.3 Policy responses to rising food prices 42
2.1 Technology can contribute to welfare without affecting measures of short-term
output 55
2.2 Technological innovation may spur further innovation in upstream and downstream
activities 56
2.3 Promoting appropriate technologies in Rwanda 57
2.4 Shortcomings of available measures of technological achievement 60
2.5 Deepwater petroleum technology in Brazil 62
2.6 The green revolution 68
2.7 Technology and growth in Latin America’s natural resource–based economies 71
2.8 Innovative use of communications technology is improving financial access for
the poor 75
2.9 The technological divide within India 91
3.1 Technology imports: Different paths for different countries 113
3.2 European call centers in the Maghreb have inspired local entrepreneurs and prompted
a specialization in high-value-added services 118
3.3 South African investment in Zambia’s retail sector has improved the quality of local
produce and farmers’ earnings 118
3.4 Wal-Mart’s entry in Mexico boosted the Mexican soaps, detergents, and surfactants
industry 119
3.5 Technological transfers through the diaspora and return migrants:
Some examples 125
3.6 Principal market failures impeding technological progress in developing
countries 143
3.7 Government sponsored innovation: Brazilian biofuels 144
3.8 A successful government program of technological development and innovation
financing in the Republic of Korea 145
3.9 Technology in 2020 152