Strong growth in developing countries is likely to cushion the impact of the US downturn and of global financial market volatility over the next two to three years, predicts a report, Global Economic Prospects 2008: Technology Diffusion in the Developing World.
According to the report, while global growth goes down to 3.3% in 2008, that of high-income countries would move down to 2.2% and that of developing countries would come down to 7.1%.
Although the slowdown is markedly more in the high-income countries, it was also extensive to include all major economies including India and China. South Asia?s continued buoyant production gains are linked to double-digit growth in India, which is tied in turn to strong domestic demand. While GDP growth in India is expected to slow down from 9% in 2007 to 8.4% in 2008, China?s growth is likely to go down from 11.3% to 10.8%.
The report, while examining the advancement of technology in developing countries since the early 1990s, reveals that technological progress in developing countries has been much faster than in high-income countries–reflecting an increased exposure to foreign technology.
On the other hand, the technology gap remains large, and the domestic factors that determine how fast technologies spread often stymie progress, especially among low-income countries.
Progress on the technology front is blunted by the growing divide across different segments. While specific sectors in advanced urban centres in China and India, for example, use world-class levels of technology, but the incidence of these technologies elsewhere in the country, and in rural areas in particular, remain low. Even within sectors, technology may diffuse only slowly.
In Brazil and India, for example, the most sophisticated firms use technologies and achieve levels of productivity that rival world leaders, but vast majority of firms operate at levels of productivity that are less than one-fifth of the top performers.
Pointing to the vast potential for increasing productivity, the report notes that if domestic competencies were available (or created) to efficiently use the technologies employed by enterprises at the national frontier by their less productive rivals India?s GDP could be 4.8 times higher.
A surprising finding of the study is that although one might have expected India to scored substantially better than many Sub-Saharan African countries in overall technological diffusion, in fact, it does not. Despite the existence of several technologically advanced cities in India, technologies have not penetrated deeply in many parts of the Indian countryside mainly due to the basic infrastructure constraints in the countryside that can support the kind of sophisticated technologies that the elites in the country are capable of supporting.
The report also notes that while India has dominated the outsourcing market, rapid expansion of the business may be running into capacity constraints as the pool of unemployed and underemployed skilled workers dries up and wages are bid up. Eventually, rising labour costs may partly erode the advantage of the current major offshore centre, providing greater room for competition from poorer countries.