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GLOBALIZATION AND TECHNOLOGY

The diffusion of knowledge and technology worldwide in recent decades has brought important changes to the global innovation landscape. But those changes could be much more profound if countries created more supportive investment environments.

INTRODUCTION

It took 1,000 years for the invention of paper to spread from China to Europe. Nowadays, in a world that has become more integrated, innovations spread faster and through many channels.

Our research in Chapter 4 of the April 2018 World Economic Outlook takes a closer look at how technology travels between countries. We find that the spread of knowledge and technology across borders has intensified because of globalization. In emerging markets, the transfer of technology has helped to boost innovation and productivity even in the recent period of weak global productivity growth.

As the April 2018 issue of the International Monetary Fund’s World Economic Outlook points out, globalization – encompassing freer trade, increased foreign direct investment, and the international use of patents and copyrights – has substantially bolstered the diffusion of knowledge and technology. The increased international competition associated with globalization may also contribute to overall prosperity, as it strengthens incentives to adopt new technologies and to innovate.

Globalization boosts technological development

The increasing intensity of global knowledge flows points to important benefits of globalization. While globalization has been much criticized for its possible negative side effects, our study shows that globalization has amplified the spread of technology across borders in two ways. First, globalization allows countries to gain easier access to foreign knowledge. Second, it enhances international competition—including as a result of the rise of emerging market firms—and this strengthens firms’ incentives to innovate and adopt foreign technologies.

Moreover, the global diffusion of knowledge and technology generates positive network effects through cross-pollination, as it enables technology-receiving countries to advance their own research and development. Such dynamics are a major reason why, in China, R&D expenditures have skyrocketed, and in South Korea, stocks of international patents are piling up. These countries have joined traditional leaders in sectors such as electrical and optical equipment and (in South Korea’s case) machinery.

Impact of Globalization on the technology of India

It is now an everyday experience to phone a large US- or UK-based company with a technical, financial or administrative enquiry and end up talking to someone in Bangalore or Mumbai. India’s ready supply of well educated, English-speaking and relatively cheap workers has made the country a top destination for many Western companies, from banks and airlines to big pharma and information technology (IT) firms. Yet the outsourcing of labour has had unforeseen local impacts on science and innovation — and on the technologically gifted young people of India.

India’s IT boom, which started in the mid-1990s after the liberalization of the Indian economy in 1991, has generated headlines and hyperbole in both business and politics.

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