INAPPROPRIATE TECHNOLOGY What Is in It for the Rich?

Abstract

In this paper, we investigate incentives, other than altruism, developed countries have in improving developing country technologies. We propose a simple model of international trade between two regions, in which individuals have preferences over an inferior good and a luxury good. The poor region has a comparative advantage in the production of the inferior good, and the rich in the luxury good. Even when costly adaptation of the technology to the poor region's characteristics is required -which makes the technology inappropriate for local use -there are parameter configurations for which the rich region has an incentive to incur this cost. It benefits from an improvement in its terms of trade; by raising the efficiency of the productive process of the developing region, it can also redirect its own productive resources toward the luxury good. Indeed, there are cases where the rich region would prefer to improve the poor region's technology for producing the inferior good rather than its own. We apply our model to the Green Revolution and provide a quantitative assessment of its welfare effects. School of Business, Duke University and RAND; kumar@rand.org. We are grateful to two anonymous referees for their detailed comments which have considerably improved the paper. We also benefitted from useful discussions and comments from Keywords

Endogenous Enforcement of Intellectual Property, North–south Trade, and Growth

“…In our model, R&D improves total factor productivity rather than investment-specific productivity, which is in line with Rodriguez-Lopez and Torres (2012), who study the technological sources of productivity growth in Germany, Japan, and the United States. We do not consider the incentives that developed countries may have for improving developing country technologies, as investigated by Fernandes and Kumar (2007).…”