Technology Ladder Research Articles

Industrial Leadership Changes without Technological Discontinuity: Modularization, Institution-Led Market Discontinuity, and Market Development Strategy

Previous studies on changes in industrial leadership, called “catch-up cycles,” focused on the critical role of technological disruption in the efforts by latecomers to forge ahead. However, we have recently witnessed leadership changes even in technologically mature sectors, such as industrial equipment, without technological discontinuity. To investigate changes in industrial leadership in these sectors, we propose a conceptual framework that emphasizes the role of modularization as a technology ladder for latecomers to narrow the technological gap with the frontier, institution-led market discontinuity by governments, and latecomers’ market development strategies. With this framework, we analyzed successive leadership changes in the Chinese excavator market, from Japan to Korea in the early and mid-2000s and from Korea to China after 2010. We advance our understanding of the catch-up phenomenon in business and society by describing the implications involved in latecomers’ leadership in mature sectors from a “non-Schumpeterian” perspective.

FDI spillover effects on innovation activities of knowledge using and knowledge creating firms: Evidence from an emerging economy

The beneficial effects of innovation for firm performance and competitiveness are well established but it has been suggested in recent years that innovation regimes differ between advanced and emerging economies. While advanced economies rely on knowledge generation, their emerging counterparts follow mainly knowledge use regime through the application of existing knowledge and technology. Climbing up the technological ladder can be helped through spillovers from foreign investors to local firms. We investigate whether FDI spillovers influence different phases of innovation process (from decision to innovate to productivity) among knowledge using and knowledge creating firms in an emerging European economy. The results show that innovation process in emerging economies is closer to imitation than creation of novel products. Local firms benefit from foreign counterparts in the early phase of innovation process. Stronger FDI effects are found on firms that undertake innovation through knowledge use than through knowledge generation.

Cooking energy use in Bangladesh: Evidence from technology and fuel choice

This study explores the socioeconomic determinants of energy poverty in clean cooking in Bangladesh, through analyzing the factors that determine the choice of cleaner cook stoves and cooking fuels among different segments of the population. Ordered probit and ordered logit models are used to analyze a country wide dataset from the Bangladesh Multiple Indicator Cluster Survey 2019, to estimate the strength of influence of household characteristics on these choices. It was found that houses with more ventilation facilities tend to use less clean fuels and more primitive forms of stoves, whereas rented houses use cleaner fuels and technologies. Households with female or older heads have lower use of cleaner cooking solutions. Larger households use cleaner cooking less, but households with more and younger children use cleaner cooking more. Household wealth positively relates to choice of cleaner cooking solutions. Higher education and greater electricity access do not necessarily lead to movement up the cooking energy and technology ladder. Urban areas use cleaner cooking solutions more, as does the capital city area compared to other locations. Increasing the distribution of cleaner fuels and stoves across rural regions and among lower income communities is recommended for achieving the national clean cooking target. .

Economic complexity and price competitiveness dependence: empirical evidence using panel models

PurposeAs economies with high economic complexity and productive capabilities may easily adapt their productive structure due to product differentiation and innovation, the central variable of competitiveness for these countries is the product quality, not price. On the other hand, the price can be an important determinant of less complex countries, and hence, real exchange rate (RER) misalignments may have long-term impacts. This paper aims to empirically assess variations in the magnitude of the impact in RER misalignments on output growth subject to countries’ economic complexity.Design/methodology/approachThe estimation technique used is the generalized method of moments-System estimator as this method is robust to reverse causality. Heterogeneous regressions using interaction models are undertaken to analyze to what extend promoting economic complexity can reduce price competitiveness dependence and allow countries to grow faster without relying on cost competitiveness.FindingsEstimates show that economic complexity (which measures technological and productive capabilities) determines cross-country differences regarding the effects of RER misalignments on countries’ long-term growth rates. The results suggest that exchange rate devaluations may not be effective for countries at the top end of the technological ladder while an overvalued RER may damage the long-term growth rate of countries with low levels of economic complexity.Originality/valueThis paper contributes to the literature by empirically investigating the impact of RER misalignments in countries with distinct technological and productive capabilities based on the recent developments of countries’ economic complexity analysis. It investigates whether more diversified and complex economies are less sensitive to RER misalignments as they can adapt their production, undertake other tasks, create new products and increase the quality of products they produce. Less complex economies, on the other hand, are less capable of innovating because it demands productive capabilities they do not have, and hence, they are more dependent on their current export basket.

Catching-up in the semiconductor industry: comparing the Chinese and Malaysian experience

ABSTRACT This paper compares the paths of development taken by China and Malaysia in their attempts to pursue catching-up. While both China and Malaysia rely to a large extent on attracting foreign direct investment, China has, since its economic liberalisation in the late 1970s, implemented a more proactive set of industrial policy to embed foreign know-how and promote domestic technological deepening. This is illustrated through a comparison of the evolution of the Chinese and Malaysian semiconductor (upstream) industry. Although their progress remains tentative at this stage, China seems to be showing more concrete signs of technological and industrial sophistication than Malaysia. Such mastery is a useful platform for Chinese firms to progressively climb the technological ladder and to capture more value from the production and sales of increasingly complex goods and services. The principles discussed in this paper provide policy lessons, or at least some initial guidance, for other developing economies aspiring to move up the value chain.

Intellectual property regimes and wage inequality

We use The Patents (Amendment) Act, 2002 in India as a quasi-natural experiment to identify the causal effect of higher incentives for innovation on a firm’s compensation structure. We find that stronger intellectual property (IP) protection has a sharper impact on the demand for managerial skill for technologically advanced firms. Firms that were a-priori above the industry median (in terms of technology adoption, more so for R&D expenditure) witness a rise in the share of managerial compensation by 1.3%–8.3% higher than the rest. This effect is completely driven by firms between 5–8th decile with no effect on firms below the median or at the very top of the technological ladder. This observed “snail-shape” in the firms’ response to the IP shock is rationalized in a model where firms within an industry compete for patents by investing in managerial inputs. The observed increase in wage inequality can partly be attributed to a stronger performance pay for high-tech firms. Associatedly, high-tech firms invested more in technology adoption, started to produce more product varieties at higher quality, and filed for more product patent claims.

Technology Decomposition and Technology Recombination in Industrial Catch-up for Large Emerging Economies: Evidence from Chinese Manufacturing Industries

ABSTRACTThe influence of technological learning on industry-level catch-up has long drawn substantial attention in the catch-up research field. However, the underlying mechanisms of technological learning and the unique catch-up context in large emerging economies are much less explored. To explain the technological learning processes of latecomers that face the technology gap and strive to build differentiated competitive advantage, this study builds on the absorptive capacity perspective and deconstructs technological learning processes into two mechanisms: technology decomposition and technology recombination. The former entails decomposing advanced technologies into pieces, parts, or modules, while the latter entails the process of capturing market opportunities through recombining knowledge from diverse sources into commercial products through localized innovations and adaptations. Then, we propose a unique ‘ladder-like’ catch-up context (i.e., technology ladder and market ladder) and investigate how the technological learning process and the unique catch-up context jointly affect industrial catch-up performance in China. Using seven-year panel data from Chinese manufacturing industries, the results indicate that only technology recombination has a significantly positive relationship with industrial catch-up performance. In addition, the market ladder strengthens the positive impact of technology recombination on industrial catch-up, while the technology ladder weakens the positive impact of technology decomposition on catch-up.

Export Diversification and Sophistication and Industrial Policy in Tunisia

This paper explores the Tunisian experience of exports diversification and the role played by industrial policies. It describes the general trends and the dynamics of diversification using a very disaggregated data set on exports for the period 1995-2017, for both primary and resource-based products and manufactured products. It has been generally recognized that openness and export promotion policies established since the early 1970s succeeded in allowing Tunisia to achieve significant export growth, especially in low-technology manufacturing. But, until recently, the general wisdom has been that the country has achieved limited success in moving up the technological ladder, with diversification, and sophistication of exports. In this paper, we show that this view is not warranted and that extensive diversification and sophistication has taken place over the last couple of decades, and more significantly the most recent period, in which Tunisia has been remarkably resilient, despite the political upheavals which have rocked the country. The paper highlights the successes and failures of the process of diversification and investigates the role of both the horizontal and policies pursued. It focuses on the “how” issue and explores whether and how specific policies are successful or not in meeting their objectives. Most importantly it presents a novel approach to study the dynamics of diversification and tries to identify the basic reasons behind the success or failure of diversification. It shows that the dynamics of innovation is extremely rich and varied. Diversification may be successful with products becoming mature exports or emerging exports. But there may also be failures with products experiencing stalled exports or episodic exports processes. These empirical findings lead to a questioning of one major argument in the literature that the main constraint to diversification is a market failure due to the fact that innovators (who introduce new products or new markets in exports) bear the major cost of their innovation, but later entrants reap the benefits. Discovery and innovation seem to be very extremely common, but success and consolidation are much more difficult. The paper draws important conclusions about the effectiveness of “horizontal vs vertical policies”, “single vs packages of policies”, and the focus on spurring discovery and innovation per say vs supporting the growth of already emerged innovations.

The Political Economy of Innovation Why is Brazil Stuck in the Technology Ladder? ,

The essay considers the role of big private businesses (BBs) within the Brazilian national system of innovation (NSI). Our question is as follows: How do the innovation practices and political behavior adopted by BBs shape the Brazilian NSI? It is our claim that although BBs play a prominent role in leading innovation nationally, they are not supportive of institution-intensive solutions for strengthening the NSI, and thereby contribute to the creation of a dynamic that we call the ‘low-innovation trap’. The obstacles to escaping this trap are manifold, but here we shall focus on 01. the lack of coordination between actors and instruments within government, 02. the high level of instability in the Science, Technology and Innovation (ST&I) budget, 03. the increasing obstacles faced by BBs wishing to innovate and 04. the lack of correspondence between government proposals and societal demands. Without a strong coalition pushing for it to be upgraded, it is likely that the NSI will remain unfit for purpose.

How does China fare on the Russian market? Implications for the European Union

This paper reviews China’s growing economic ties with Russia. We conclude that such ties have strengthened in terms of trade and cross border lending, but less in terms of Chinese foreign direct investment in, or portfolio flows to, Russia. Meanwhile, Europe remains Russia’s largest trading partner, lender and investor. In relation to trade, China seems to have become more of a competitor for the EU on Russia’s market when we appraise China’s increasing export share and the increasing value added of its exports and previous empirical analysis at the product level. Increasing competition between European and Chinese exports should not be surprising as there is ample evidence that China has been moving fast up the technology ladder during the past few decades. Competition over investment and lending is more limited but the situation could change rapidly with China and Russia giving clear signs of a stronger-than-ever strategic partnership.

Assembly trade and technological catch-up: Evidence from electronics firms in China

This study evaluates technological catch-up in the electronics industry by Chinese indigenous firms compared with foreign firms operating in the country. We make use of firm-level data for the period 2001–2012, a period during which the Chinese government encouraged engagement with foreign partners and entry into the global supply chain in hopes of fostering technology transfer. We apply data envelope analysis to estimate group technology frontiers for private, state, and foreign firms, and decompose total factor productivity growth into technological change and technical efficiency change. The picture that emerges is one of mixed success. Indigenous firms on the cutting edge have pushed their group productivity frontier outward at a rapid pace even as the broad mass of indigenous firms has slipped further inside this expanding frontier. For private firms as a whole, the strongest period for technological catch-up was the mid-2000s, with progress relative to the foreign standard slowing again after that. Achievement has been greatest in sub-industries at the lower end of the technological ladder (e.g., appliances) and less notable at the upper end (e.g., computers). Evidence of a contribution by research and development and by worker training is found only beyond a cumulative threshold and for firms advantaged by location or joint venture partnership.

Technology transfer for development in Nigeria: patterns, problems and prospects

Technology is critical to industrialization and economic development of every country. The disparity in income gap between countries is largely explained by the differences in technological generation, application and diffusion. For quite sometimes now, Nigeria has continued inordinately to occupy an unenviable position in the technological development ladder. Consequently, it is contended that the time is ripe for Nigeria to properly articulate and harness opportunities offered by the technology transfer. Such technology transfer arrangements can be accomplished through carefully formulated and implemented policies that not only emphasize the optimization of the transfer options but also foster the deepening of the national absorptive capacity and innovation capability, bearing in mind the inextricable linkage between research results from academic and research institutions and industries.

How Does China Fare on the Russian Market? Implications for the European Union

This paper reviews China’s growing economic ties with Russia. We conclude that such ties have strengthened in terms of trade and cross border lending, but less in terms of Chinese foreign direct investment in, or portfolio flows to, Russia. Meanwhile, Europe remains Russia’s largest trading partner, lender and investor. In relation to trade, China seems to have become more of a competitor for the EU on Russia’s market when we appraise China’s increasing export share and the increasing value added of its exports and previous empirical analysis at the product level. Increasing competition between European and Chinese exports should not be surprising as there is ample evidence that China has been moving fast up the technology ladder during the past few decades. Competition over investment and lending is more limited but the situation could change rapidly with China and Russia giving clear signs of a stronger-than-ever strategic partnership.

US’ Section 301 Actions: Why They Are Illegitimate and Misguided

This research paper examines the US’ Section 301 unilateral actions against China, stemming from the US’ concerns over China’s ambitious industrial policies and its rapid technological advancements. It outlines the accusations of the US regarding China’s conditions for technology transfer and what the US sees as overly intrusive Chinese government involvement in investments. It looks in detail at why the US’ actions are in fact illegitimate and misguided. Most of the US’ accusations are not framed by WTO rules. Furthermore, the US cannot unilaterally take action that contravenes another WTO Member’s rights under WTO agreements without going through the WTO’s Dispute Settlement Body. Most strikingly, the US is accusing China of industrial policies and for supporting its companies to move up the technological ladder while it has been the pre-eminent country having its own version of such policies including until today. If these actions continue and expand, the ensuing trade war is likely to delegitimize the WTO and its current functions in regulating trade, lead to economic slow-down, and even possibly financial crises in emerging economies.

Climbing the Space Technology Ladder in the South: the Case of Argentina

The satellite industry is one of the few high-tech sectors where Argentina has generated its own innovation capabilities. This is the result of a process initiated more than 25 years ago in the realm of civilian space exploration, which in turn was possible because of the previous accumulation of knowledge and capabilities in military space projects as well as in another high-tech activity, the nuclear industry. Along these years, the country has been able to design and put into orbit observation and telecommunication satellites rapidly climbing the Space Technology Ladder (STL). This article analyzes this evolutionary trajectory, highlighting the key technological milestones, the role played by the main actors of the space sector, the linkages among them as well as with foreign partners, and the prospects of this activity in a developing country like Argentina.

Climbing the Technology Ladder

Hurco Europe's December Open House, which drew 80+ visitors and helped secure £1.5 million-worth of orders that month, underscored a record trading year for the company. Sales growth of 22% took turnover to £23 million, reports managing director David Waghorn, who also cites a 40% growth in 5-axis sales

A cross-country empirical test of cognitive abilities and innovation nexus

In this study we analyze the relationship between national cognitive abilities and innovational output using data from 124 countries of the world. By employing cross-country IQ scores traditionally used by psychological literature to represent national intelligence, and Economic Complexity Index as a novel measure of innovation, our study shows that there is a positive connection between them. We use a variety of tests to check the robustness of the nexus. Overall, our findings indicate that more intelligent nations export more sophisticated and diverse products to the world market and thus are more innovative. Therefore, developing countries should consider investing in human capital and related institutions if they are to boost innovative capabilities and move up the technology ladder in producing and exporting sophisticated and varied lines of products. This should bring them greater economic diversity which could be a right lever in mitigating negative external shocks.

Forecasting the Evolution of Market Structure: A Comparison of Structural and Descriptive Models

Market structure evolves stochastically as firms innovate in product quality, determining such downstream variables as prices, market shares and profits. Many parties — regulators, financial analysts, component suppliers, manufacturers of substitutable products — might benefit from forecasts of how an industry’s market structure will evolve. This forecasting problem is particularly difficult in technology ladder markets, because potential quality changes are infrequent and meaningful quality improvements are even more rare, suggesting limited data available to make predictions. The current paper compares the predictions of a Pakes and McGuire (1994) dynamic quality ladder model and a vector autoregression (VAR) model to develop insights about predicting the evolution of market structure. Market data are used to estimate both models in an estimation sample and then predict future market structures in nonrandom holdout samples for several automotive categories and numbers of competing firms. Both models performed fairly well in most cases, but the relative predictive performance depends on the extent to which external regime changes affect the market.

Managing Technological Development: A Study of Vietnam’s Telecommunication Goods Industry

This paper examines Vietnam's international trade competitiveness in the telecommunication goods industry. Comparing Vietnam's performance to those of its more advanced ASEAN-3 rivals (Indonesia, Malaysia, and Thailand), the paper argues that Vietnam has overcome its initial technological backwardness. Nevertheless, Vietnam's continued ability to climb the technological ladder depends on the efficacy of its industrial policy as well as the vitality of its overall science and technological base. To this end, Vietnam should implement a more robust industrial policy to fully realize its current advantage in the telecommunication goods industry. It should “push” its cohort of state-owned enterprises to climb the technological ladder by tying state support to their export performances. In addition, Vietnam needs to strengthen its overall science and technological base. It would do well by investing in research and development activities, and cultivating a larger share of tertiary graduates in engineering and other technological fields.

The new industrial revolution and industrial upgrading in China: achievements and challenges

One recent development in the area of manufacturing is the New Industrial Revolution (NIR). This paper examines the contours shaping the NIR, and analyses the challenges facing China in its pursuit to achieve technological parity with advanced nations. China’s economic rise is strongly associated with its ascending the technology ladder. The country is now the world’s workshop. As the labour-intensive strategy based on cheap labour has run up against its limits, policy makers have devised plans that focus on industrial upgrading, promote indigenous innovations and establish national brands. This way China would avoid the middle-income trap and eventually become an innovative powerhouse.