Technology adoption and the investment climate : firm-level evidence for Eastern Europe and Central Asia

The international diffusion of technology presents an opportunity for developing economies distant from the world technological frontier to reduce their income gap relative to advanced economies. It is therefore crucial to understand why, when faced with similar technological alternatives different firms in different countries choose to adopt different vintages of capital. This paper examines technology adoption across firms in Eastern Europe and Central Asia. The findings show that access to complementary inputs - managerial capacity, skilled labor, finance, and good infrastructure - and to international knowledge - through foreign direct investment or exports - is an important correlate of technology adoption. The link between market incentives and technology adoption is more nuanced. Although consumer pressure results in technology adoption, competitor pressure does not, suggesting that only firms with rents are able to adopt technology given substantial resource constraints. Privatized firms exhibit better technology adoption outcomes but only when a clear private owner with a profit incentive is present. Better governance is associated with technology adoption only in the countries that joined the European Union in 2004. Future increases in technology adoption by firms in the region will require complementary reforms of the investment climate.E-Business,Technology Industry,ICT Policy and Strategies,Microfinance,

Technology Adoption and the Investment Climate: Firm-Level Evidence for Eastern Europe and Central Asia

Survey data for 7,000 firms in 28 countries in Eastern Europe and Central Asia are used to examine the correlates of technology adoption proxied by ISO certification and web use. Complementary inputs such as skilled labor, managerial capacity, research and development, finance, and good infrastructure are shown to be important correlates of technology adoption. The link between market incentives and technology adoption is more nuanced. While stronger consumer pressure is significantly associated with technology adoption, competitor pressure is not, suggesting that in developing economies where many input markets are imperfect, it is primarily firms with rents that are able to adopt new technology. Foreign-owned firms exhibit significantly better technology adoption outcomes, but privatized firms with domestic owners do not. Copyright The Author 2010. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / the world bank . All rights reserved. For permissions, please e-mail: [email protected], Oxford University Press.