Technology and Development

Technology adoption does not happen in a vacuum. It depends on how markets for inputs, outputs, finance, ideas, and infrastructure are organised. Policy therefore affects adoption not only by subsidising firms or providing complementary inputs, but also by shaping the markets through which technologies are accessed and used. This includes competition policy, entry and exit regulation, rental and sharing markets for indivisible capital, procurement and contracting in infrastructure sectors, and the institutions that govern innovation.

A first margin is competition. The relationship between competition and innovation is not monotone. Competition can raise incentives to innovate for firms close to the frontier, but it can also reduce rents for lagging firms and weaken their incentives to upgrade. The same logic applies to trade integration: larger markets can induce upgrading among capable firms, but can also push weaker firms or countries towards simpler activities. The market structure that supports adoption may therefore differ across stages of development and across distances from the frontier (Aghion et al. 2005, Acemoglu et al. 2006, Amiti and Khandelwal 2013, Aghion et al. 2024, Atkin et al. 2025).

A second margin is the organisation of access to technology. Technologies with large fixed costs or indivisibilities may diffuse slowly if adoption requires outright ownership. But ownership is not the only way to use a technology. Rental markets, sharing arrangements, platforms, and clusters can allow firms to reach scale collectively. This means that policy can support the organisation of adoption, not only the purchase of technology itself (Bassi et al. 2022, Caunedo and Kala 2021). Diffusion models emphasise how congestion, imitation, and market thickness jointly determine adoption dynamics (Rogers 2003). Recent applied work studies gig-type intermediation, procurement design, and innovation incentives as mechanisms that reshape effective market structure for adoption (Diamond 1997, Frankenthal 2024, Cox 2025).

A third margin is infrastructure procurement and upstream input markets. Roads, power systems, and industrial structures are not only public investments; they are produced through contracting systems and input markets. When procurement is weak or upstream materials markets are distorted, the effective cost of infrastructure rises. This matters for technology adoption because infrastructure is part of the cost of using modern technologies (Collier et al. 2016, Beirne and Kirchberger 2023).

Finally, market design can affect the direction of innovation. One route is to change private incentives through patent rights, procurement, or regulation. In principle, these tools can redirect innovation towards the needs of developing countries. In practice, the evidence is mixed: patent rights appear to affect diffusion more clearly than the direction of innovation itself, while regulation can shape local innovation incentives in specific sectors (Diwan and Rodrik 1991, Cockburn et al. 2016, Duggan et al. 2016, Berrutti and Ruzzante 2025). Classic mechanisms from priority-review vouchers illustrate how targeted procurement-like incentives can steer private R&D towards socially valuable technologies (Kremer 2002).

A second route is public R&D. This is most relevant when markets are too small, risky, or fragmented to attract private innovation targeted to local conditions. Public or coordinated R&D can therefore matter when the constraint is not failed diffusion, but the absence of appropriate technologies. Agriculture and health are natural examples, because ecological conditions and disease burdens vary sharply across countries while private incentives are often weak (Kremer and Glennerster 2004, Akerman et al. 2025). In these cases, policy has to act on innovation itself, not only on adoption.

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