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Will New Technologies Help or Harm Developing Countries?

Summary:
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. When they demand complementary and costly investments, they are no longer a shortcut around traditional manufacturing-led development. CAMBRIDGE – New technologies reduce the 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 rich or poor countries. NAZEER AL-KHATIB/AFP/Getty Images Previous Next Mobile phones are a clear example of the deep impact of some new technologies. In a clear

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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. When they demand complementary and costly investments, they are no longer a shortcut around traditional manufacturing-led development.

CAMBRIDGE – New technologies reduce the 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 rich or poor countries.

Mobile phones are a clear example of the deep impact of some new technologies. In a clear case of technological leapfrogging, they have given poor people in developing countries access to long-distance communications without the need for costly investments in landlines and other infrastructure. Likewise, mobile banking provided through cell phones has enabled access to financial services in remote areas without bank branches.

These are instances of technology improving 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 higher-paying jobs. In other words, it must help poor people in their role as producers as well as consumers. A model of growth that the economist Tyler Cowen has called “cell phones instead of automobile factories” raises the obvious question: How do people in the developing world afford to purchase cell phones in the first place?

Consider again the examples of mobile telephony and banking. Because communications and finance are inputs into production, they are to some extent producer services as well as consumer services.

For example, a well-known study has documented how the spread of mobile phones in the Indian state of Kerala enabled fishermen to arbitrage price differences across local markets, increasing their profits by 8% on average as a result. Kenya’s ubiquitous mobile banking service M-Pesa appears to have enabled poor women to move out of subsistence agriculture into non-farm businesses, providing a significant bump up the income ladder at the very bottom.

New digital technologies have been playing an important role in transforming large-scale farming in Latin America and elsewhere. Big data, GPS,...

Dani Rodrik
I am an economist, and a professor at the Harvard Kennedy School. My most recent book is Economics Rules: The Rights and Wrongs of the Dismal Science (Norton, 2015). I was born and grew up in Istanbul, Turkey. I still follow Turkish politics very closely, as you will find out if you spend any time with this blog.

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