Human capital and technological catch-up of developing countries: In search of a technological leader

Abstract

The role of knowledge accumulation and technological progress is well recognised in the growth literature. However, the developing countries have limited capacity for innovation and they mostly benefit from imitation and knowledge spill-over from the developed countries. Studies emphasized on the role of human capital in imitation and technological catch-up process of the developing countries. For empirical analysis of the catch-up hypothesis, existing literature generally considered USA as the technological leader to which other countries tend to catch up. However, it remains an open question whether USA is the only candidate to be the technology leader. The paper re-examines the human capital based technological catch-up hypothesis exclusively for the developing countries with alternative possibilities of technological leader. Our study investigates for the potential technology leader by estimating a structural growth equation suggested by Benhabib and Spiegel (1994) using panel data from 75 developing countries. Considering the possibility of endogenetiy problem of capital accumulation, the paper used an instrumental variable technique for estimation. Our results show that when USA is used as global technological leader, or different single countries are used as technological leader of the developing countries in different regions, the estimated structural equations fail to find any positive role of technological catch up in economic growth of the developing countries. However, when OECD countries collectively, or major trading partner of developing countries with higher income are considered as technological leader, we find a strong evidence of technological catch up. The findings have few policy implications for developing countries. As group of developed countries can serve better as a technological leader in the catch-up process of the developing countries, the latter should extend economic relations with many developed countries instead of relying on economic ties with one or few countries. Moreover, trading with developed countries may be more beneficial for developing countries in terms of potential dynamic gains of trade as it exposes the country to higher level of technology and creates a scope for imitation.