Review of: Technology catch-up and the role of institutions by Fabio Manca

Abstract

In this review from the journal article “Technology catch-up and the role institutions”, I will first explain the problem the author addresses and why it matters. Institutional quality is a crucial importance in the process of technology catch-up and to have higher GDP and productivity growth rates. Secondly, I explain the methodology used by the author as he uses empirical data to come out with his conclusions. I will then explain the conclusions the author came to after doing his studies and have written a grateful acknowledgment to my family.

The main concern in the journal article “Technology catch-up and the role of institutions” written by Fabio Manca, is to investigate the differences of institutional quality in order for countries across the world to catch-up in means of technology. The article analyzes the impact of different institutions on the production of innovation and diffusion across countries. The main question they pose is if countries with a better institutions experience faster technology catch-up than those with poor institutions? This is a huge concern for everyone trying to improve their countries economic growth because technology helps us speed up the process of developing things. For example in a micro perspective, imagine if we still had to hand make automobiles instead of having machines pumping them out, this would be way more time consuming and would slow down the production and profits of the company but would also slow down the whole economy in that country.

This is an empirical article because they use real-world data in order to make their discoveries. A problem that this article encounters is the different levels of data from each country based on their

I would like to express my appreciation for assistance form my daughter Erica who explained what the article was about and to the ford foundation who provided financial support for the project.

stage of technology and GDP. In the article they use a wider spectrum of countries in order to see the developed and developing countries. They also run the analysis on a cross-section basis. Last but not least, they sub categorize institutional quality indicators in order to disentangle the effect that each of them have. Levin (1988) and Gallini (1992), for instance, argue that ‘‘patents raise imitation costs by about forty percentage points for both major and typical new drugs, by about thirty percentage points for major new chemical products, and by twenty-five percentage points for typical chemical products”. Also, Helpman (1993) and Lai (1998), among others, find a negative link between the speed of imitation and the extent by which IPRs are enforced in the follower country. Ginarte and Park (1997) provide evidence of threshold levels in the effects of IPRs on growth. In contrast, we simultaneously test the impact of IPRs on both innovative and imitative activities over a cross-section of countries while also controlling for other institutional arrangements.

This article is divided into sections. Section 2 will review the link between institutional quality and technology transfers by giving some example of how good institutions may lead to faster technology adoption.  Section 3 describes the data issues and endogeneity problems and in Section 4, the article proposes the regression results and some robustness checks. A substantial part of the paper will be devoted to the extensions of the technology catching-up model. In Section 5 we will try to assess which institutional arrangements are affecting technology flows from leader to followers. In Section 6 we will discuss the empirical test of the Institutional threshold analysis.

In the conclusion they address that difference between countries institutional quality is crucial in illustrating the speed of technology. Countries with poor institutional qualities have a relatively lower GDP and productivity growth rates. “In our basic assumption, enforcing property rights boosts the innovative activity by raising overall institutional quality and raising TFP growth rates. However, when property rights are tightened, followers find it more difficult to imitate technologies discovered elsewhere due to a relative increase in the costs of imitation.”

This journal article was a lot easier to read then the first one I had to read just because the style of writing was a bit simpler. The author uses a lot of examples and even though he uses big words he tries to explain it in simple terms. I agree with the author that technology catch ups are crucial and that in order for a country to have a high GDP and productive growth, they need to be caught up with the modern technology.

References

Gallini, N., 1992. Patent policy and costly imitation. The RAND Journal of Economics 23, 52–63.

Ginarte, J.C., Park, W.C., 1997. Determinants of patent rights: a cross-national study. Research Policy 26, 283–301.

Helpman, E., 1993. Innovation, imitation, and intellectual property rights. Econometrica 61, 1247–1280.

Lai, E., 1998. International intellectual property rights protection and the rate of product innovation. Journal of Development Economics 55 (1), 133–153.

Levin, R., et al., 1988. Appropriating the returns from Industrial R&D. Working Paper, Cowles Foundation, Yale University.

Manca, Fabio. “Technology catch-up and the role of institutions.” Journal of Macroeconomics. 12 2010. http://journals1.scholarsportal.info.librweb.laurentian.ca/details.xqy?uri=/01640704/v32i0004/1041_tcatroi.xml (accessed 12 29, 2010).