Technology and Development

A first reason for limited adoption is that the return to adopting a technology may be low if others are not doing it as well. This happens when the return to adopting a technology depends on adoption by others. A firm’s willingness to use digital payments depends on whether customers and suppliers use them. A manufacturer’s return to upgrading may depend on whether buyers, suppliers, or nearby firms adopt compatible technologies. In these cases, adoption is not a collection of independent choices. It is an equilibrium outcome: what is profitable for one firm depends on what other firms do.

The classic benchmark is the big-push logic of Murphy et al. (1989); closely related formalisations of this logic stress complementarities in industrialisation and investment coordination (Jovanovic 1989). A modern technology requires a fixed cost, so no single sector may find it profitable to industrialise in isolation. But simultaneous adoption across sectors can raise income and market size enough to make adoption privately profitable. This creates the possibility of multiple equilibria: a low-adoption equilibrium in which pessimistic expectations are validated, and a high-adoption equilibrium in which coordinated adoption is self-sustaining. Dynamic extensions emphasise that coordination failures may operate through beliefs or through slow-moving state variables (Krugman 1991, Matsuyama 1991, 1992). More recent work shows that complementarities matter even when the long-run equilibrium is unique, because they can amplify distortions and make temporary interventions persistent (Buera et al. 2021, Crouzet et al. 2023, Alvarez et al. 2025, Alvarez et al. 2026). Macro-finance frictions can strengthen these amplification mechanisms when coordinated adoption requires external finance (Benmelech and Bergman 2011, Cugat and Manera 2024).

The same logic applies beyond industrialisation. It appears when adoption depends on user scale, as in digital payments and platforms; when it depends on input-output linkages; and when it depends on urban density, skill formation, or local supplier networks (Dybvig and Spatt 1983, Katz and Shapiro 1985, Rodriguez-Clare 1996, Ciccone 2002, Björkegren 2019). In each case, the return to adoption depends partly on the surrounding economic environment.

Researching these mechanisms is challenging because the alternative equilibrium is not observed. The evidence base therefore often focuses on temporary or plausibly exogenous shocks and asks whether their effects persist; recent work also develops tests for whether heterogeneous outcomes are consistent with multiple equilibria (Cabral et al. 2022, Schroeder 2023, Dugoua and Moscona 2025, Garg 2025). Some evidence points against strong multiplicity, including historical evidence from the recovery of cities in Japan post-World War II, as well as from returns to the Tennessee Valley Authority (Davis and Weinstein 2002, 2008, Kline and Moretti 2014). Other evidence is more consistent with coordination mechanisms, including the effect of shifting Germany’s main hub from Frankfurt to Berlin, the recovery from Hiroshima, and the effect of investment in the Heavy and Chemical Industry in Korea (Redding et al. 2011, Choi and Shim 2026, Takeda and Yamagishi 2024, Choi and Levchenko 2025, Lane 2025). The evidence therefore is somewhat inconclusive: complementarities can magnify policy effects, but identifying coordination failures remains difficult.

Policy implications. When adoption is held back by complementarities, the policy problem is to coordinate investments that are privately unprofitable in isolation but profitable jointly. This is one way to interpret industrial policy (Murphy et al. 1989, Rodrik 1996). Related theories of infant-industry protection, coordination externalities, and spatial/industrial targeting emphasise why transient wedges can shift economies towards superior adoption outcomes when complementarities are strong (Baldwin and Krugman 1986, Head 1994, Hoff 1997, Hausmann and Rodrik 2003, Hausmann et al. 2007, Bartelme et al. 2024). Temporary protection, export support, procurement, cluster policies, shared facilities, or targeted infrastructure can all play this role, depending on where the complementarity lies.

The evidence suggests both promise and limits. Temporary protection may serve certain industries, as during the Napoleonic Blockade, which accelerated mechanised textile adoption in more exposed French regions (Juhász, 2018), or the Heavy and Chemical Industry drive in South Korea which helped targeted sectors and networks grow (Choi and Levchenko 2025, Lane 2025). But it can also increase concentration and misallocation, showing that coordinated scale and efficient scale are not the same thing (Kim et al. 2021, Choi et al. 2025).

Scale-driven upgrading through participation in markets that reward quality and sophistication shows success for firm outcomes in firm-level trade studies (Yeaple 2005, Brambilla et al. 2012, Manova and Zhang 2012, Görg et al. 2017, Bastos et al. 2018). But credit-market imperfections can restrict coordinated upgrading even when expected returns are high (Alfaro et al. 2004, Khwaja and Mian 2005, Manova 2008, Midrigan and Xu 2014, Cole et al. 2016).

Finally, recent quantitative work similarly suggests that the value of intervention depends on where complementarities are strongest and how they propagate across sectors, features that are systematically different in poor and rich countries (Williams 2017, Kremer et al. 2020, Jones and Summers 2022, Kremer et al. 2022, Buera and Trachter 2024, Alvarez et al. 2025, Casal and Caunedo 2024).

For full reference list see the end of the conclusion chapter.