From Adoption to Innovation: State-Dependent Technology Policy in Developing Countries

Jaedo Choi and Younghun Shim

No 2024/154, IMF Working Papers from International Monetary Fund

Abstract: Should policymakers in developing countries prioritize foreign technology adoption over domestic innovation? How might this depend on development stages? Using historical technology transfer data from Korea, we find that greater productivity gaps with foreign firms correlate with faster productivity growth after adoption, despite lower fees. Furthermore, non-adopters increased patent citations to foreign sellers, suggesting knowledge spillovers. Motivated by these findings, we build a two-country growth model with innovation and adoption. As the gaps narrow, productivity gains and spillovers from adoption diminish and foreign sellers strategically raise fees due to intensified competition, which renders adoption subsidies less effective. Korea’s shift from adoption to innovation subsidies substantially contributed to growth and welfare. We also explore the optimal policy and its interaction with import tariffs.

Keywords: Technology Adoption; Innovation; Industrial Policy; Strategic Interaction; adoption subsidy; productivity gain; Younghun shim; spillovers from adoption; Foreign corporations; Productivity; Total factor productivity; Technology transfer; Global; North America (search for similar items in EconPapers)
Pages: 68
Date: 2024-07-19
New Economics Papers: this item is included in nep-gro, nep-ino and nep-tid
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