Setting National Technology Trajectories: The Technology Assessment Role of Development Financial Institutions In Developing Countries

Abstract

Development financial institutions (DFIs) in developing countries regularly face challenges in the micro-level assessment of technology to support their decisions of financing proposed technology development investments by firms and technology institutions. These financing decisions are also guided by national technological priorities such as achieving technological self-reliance and addressing energy-environmental concerns. DFIs are therefore well placed to consciously channel technology finance into national priority sector technological research. I argue that by consistently doing so, DFIs play a key role in the setting of macro-level technology trajectories in key technology areas that are of national importance to the developing country. I also argue that as developmental finance increasingly takes prominence over private finance for supporting investments in risky but essential priority sector technological research, this role playtd by DFIs can be superior to other modes adopted by national governments for encouraging priority sector technology development. I therefore suggest that national governments in developing countries actively support DFIs in playing this role, and in developing higher levels of expertise in technology assessment to enable them to set and guide appropriate national technology trajectories. International development institutions can also support DFIs in developing countries by providing them targeted technology funds through national governments. Setting National Technology Trajectories: The Technology Assessment Role of Development Financial Institutions in Developing Countries Ganesh N. Prabhu Indian Institute of Management at Bangalore, India Introduction Development financial institutions (DFIs), in developing countries are actively involved in developing programs and providing facilities that support technology development by firms as well as scientific and technological research and development (R&D) institutions within the country. By financing technology development projects for industrial application, DFIs fill an important resource gap External finance can encourage R&D work and commercial investment in some high growth high risk areas, where both firms and technology institutions find it difficult to either single handedly, or jointly, take the entire investment risk If technology institutions rely largely on research contracts from the industry, they may increasingly work in areas of concern to some large and resources rich firms in the country that can afford such research, neglecting other areas that have small scale sector domination. The entry of technology financing through DFIs considerably reduces the risk and investment for firms with low internal resources, till they are willing to take up the high risk high return R&D project, either singly, or jointly with technology institutions (Prabhu, 1996). Though firms can rely on internal financing and internal technology development and assessment, their endowment through an external specialized source such as a DFI, considerably reduces the risk borne by the firm, even though it incurs a higher transaction cost in dealing with the external organization DFI financing can complement venture capital financing by supporting priority sector projects that may not be easily acceptable under normal venture capital financing norms DFIs therefore play an important role in helping firms and technology institutions build their technological resources, combine their expertise and increase utilization of available resources, especially in priority sectors. DFIs thus facilitate the emergence of new commercialisable products or processes, through entreprenejMil and intrapreneurial ventures in these sectors (Prabhu, 1996) This paper essentially describes the process through which a series of micro-level assessments of technology by a DFI in a developing country over time, in taking its technology financing decisions using internal policies broadly guided by national technological priorities, eventually leads to the development of macro-level technology trajectories in sectors of national importance. Figure 1 depicts this process and the linkages between the various components of the process described below.