Will new technologies really help developing economies?

Written by
Dani Rodrik, Ford Foundation Professor of International Political Economy at John F. Kennedy School of Government, Harvard University


Dani Rodrik

Optimists and pessimists are divided about the consequences of new technologies for developing economies and low skilled workers. Will technology lift all boats by providing opportunities for overall productivity gains? Or will those gains be captured by a small minority of highly skilled workers, professionals, and large corporations? This debate is particularly pertinent to Africa, where very large youth populations – tomorrow’s workers – are increasingly interacting with these technologies.

New technologies tend to reduce prices of goods and services to which they are applied. They also lead to the creation of new products. Consumers benefit from these improvements, regardless of whether they live in the developed world or the developing one.

Mobile phones represent a clear example: they have enabled easy and cheap communication among people separated by geographic distance. In a clear case of leapfrogging, they give poor people in developing nations access to long-distance communications without their governments having to make costly investments in land lines and other infrastructure. Likewise, mobile banking provided through cell phones extends access to financial services to remote areas without bank branches. We have seen many successful examples of this in Africa.


These and similar examples are clear instances of technology working to improve the lives of poor people. But for technology to make a real and sustained contribution to development it must not only provide better and cheaper products, it must also lead to more better-paying jobs. In other words, it must help developing nations qua producers as well as qua consumers. The new products and services may be cheaper, but without ever-more productive jobs, workers in the developing world are bound to lag.

The introduction of these new technologies in production in developing countries often takes place through global value chains (GVCs). GVCs are in effect part and parcel of the new technology. Improvements in communication and information technologies have enabled large firms based in advanced nations, whether retailers or manufacturers, to divide the production chain into specific tasks that can then be dispersed around the globe to take advantage of lower costs. GVCs in turn serve as the vehicle for the dissemination of technology from the lead firms to their suppliers. A common view is that the nature of global trade in modern agriculture, manufacturing and tradable services has been fundamentally transformed by GVCs.

Virtually every policy-oriented treatment of GVCs emphasizes the importance of complementary skills and capabilities, if the potential of trade and GVC participation is to be transformed into reality. Developing nations must upgrade their educational systems and technical training, improve their business environment, and enhance their logistics and transport networks in order to make fuller use of GVCs, goes the usual refrain. But such admonishments miss the point. They tend to highlight more the inherent shortcomings of the new technologies and their deployment through GVCs rather than their potential contribution to economic development. Pointing out that developing countries, including those in Africa, need to advance on all those dimensions is not news; nor is it helpful development advice. It is akin to saying development requires development.

Trade and technology present an opportunity when they are able to leverage existing capabilities, and thereby provide a more direct and reliable path to development. Unfortunately, GVCs and new technologies exhibit features that limit the upside to, and may even undermine, developing countries’ economic performance. In particular, new technologies present a double whammy to low-income countries. First, they are generally biased towards skills and other capabilities. This bias reduces the comparative advantage of developing countries in traditionally labor-intensive manufacturing (and other) activities, and decreases their gains from trade. Second, GVCs make it harder for low-income countries to use their labor cost advantage to offset their technological disadvantage, by reducing their ability to substitute unskilled labor for other production inputs. From an economic standpoint, these are two independent shocks that compound each other. In other words, each shock increases the costs of the other. The evidence to date, on the employment and trade fronts, is that the disadvantages may have more than offset the advantages.

A policy implication for African countries is that the development strategies of the future should focus somewhat less on international economic integration and considerably more on what we might call “domestic integration.” The key challenge is to disseminate throughout the rest of the economy the capabilities already in place in the most advanced parts of the productive sector. Improving the economy’s fundamentals through investment in human capital and governance certainly helps. But, in addition, African countries may require more proactive policies of government-business collaboration targeted at strengthening the connection between the highly productive global firms, potential local suppliers, and the domestic labor force.

These notes are based on Dani Rodrik, “New Technologies, Global Value Chains, and Developing Economies”, Harvard University, September 2018.