Historical technology and current economic development: Reassessing the nature of the relationship

Abstract

The empirical literature validates a linear relationship between historical technology and current economic development. While the emphasis is not usually on the underlying mechanisms, in this paper we question this relationship in a less optimistic way and we contribute to the literature by testing instead the hypothesis of a U-shaped relationship between these two variables. We use cross-sectional data on a global sample of 107 countries from developed and developing countries. Historical technology is measured using the technology adoption index in 1500 CE. Economic development is proxied by real GDP per capita. Based on a variety of econometric methods, we find strong and robust evidence that the effects of technology in 1500 CE on current economic development persist in a non-linear U-shaped fashion. Specifically, below a given threshold, historical technology reduces current economic development, while above that threshold, it stimulates development. This persistence of historical technology effects is primarily driven by the level of technology in the communication sector and is mediated by various technologies in 2000 CE, formalization of the economy, and life expectancy. Our results suggest the importance of investing in technology and improving absorptive capacity of the economy to ensure long-term economic development.