Technological progress, diffusion, and opportunities for developing countries: lessons from China

The nature of technology used in products plays a major role in determining the governance structure of value chains and the benefits of participation for developing countries. Standardization through breaking production into modules with a high degree of functional autonomy (limited mutual interference between modules) can dramatically reduce the amount of research and development (R&D), learning by doing, and the number of complementary skills needed to produce a good. This greatly increases opportunities for developing country firms to participate in formerly capital-intensive industries through reducing entry costs into global value chains. However, widespread access to standardized products with little ability to modify technical features can lead to an excessive supply of homogeneous products in a local market, resulting in intense price competition and limited technology transfer. By contrast, technology that facilitates scope for product modification and greater interaction with technology owners can help boost technology transfer and product upgrading by developing country firms. The chapter illustrates this interaction between changes in technology and opportunities for developing countries through developments in the automotive and mobile phone handset industries, with a particular reference to China’s growth experience. It also finds that automation is likely to have only a limited impact on developing countries’ opportunities to participate in value chains through the offshoring of production by high-income countries, at least in the short term. • Policies for helping domestically owned firms become technologically standalone – what some might refer to as “techno-nationalism” – do not necessarily help countries move into higher valueadded production within GVCs. Instead, policymakers should encourage firms to be full partners in global technology ecosystems and to pursue open source innovation solutions. • Automation might become a threat to developing country employment in the long term if consumption does not increase fast enough to generate sufficient additional labor demand to offset the labor-saving impact of technological change. In the short term, however, automation will not dramatically reduce the attractiveness of low-wage destinations, especially for labor-intensive tasks that require human dexterity, such as in the apparel industry. • While automation does not pose immediate risks, governments need to develop a comprehensive digital strategy to maximize the gains from GVCs. * This chapter draws from background studies and ongoing research collaboration with the following researchers: Chiara Criscuolo, Yoshihiro Hashiguchi, Keiko Ito, Jonathan Timmis, Ke Ding, Shiro Hioki, Mai Fujita, Tim Sturgeon, Eric Thun, Yuqing Xing, Satoshi Nakano, Kazuhiko Nishimura and Jiyoung Kim. 84 • Technological innovation, supply chain trade, and workers in a globalized world