Appropriate technology and Barriers to Technology Adoption Potential

Appropriate technology and Barriers to Technology Adoption: Potential implications for the European Union Jean Mercenier Ebru Voyvoda U. Panthéon-Assas and CIRED, Paris Mid-East Tech U, Ankara

A. The Issue Mixing two strands of literature: • Appropriate / directed technology • Barriers to technology adoption • Appropriate (directed) technology Ref: Diwan-Rodrik (JIE, 1991), Acemoglu-Zilibotti (QJE, 2001) In standard theory, at one moment in time, there is only one production function that expresses “state of the art”. Any deviation from this would be due to inefficiency Development target: get to the frontier = adopt the “state of the art” production function Question: Is there only one “state of the art” technology? Is the “state of the art” technology not dependent on endowments? Is there not an appropriate technology for each country depending on relative abundance in factors ?

Illustration: Log efficiency Sk-Lab Log efficiency of Un-Lab

• Barriers to technology adoption Assume identical endowments: deviation from “state of the art” is inefficiency. Causes ? Many potential complementary explanations One is: there are barriers to technology adoption in particular when economies are closed to foreign trade/capital etc Ref: Parente and Prescott, 2000 One (hard to measure) consequence from trade integration -- is to reduce these barriers to technology adoption… -- … and to shift the country’s efficiency closer to frontier Efficiency gains are induced… and welfare gains. . . When many countries simultaneously join a trade union. . . strong potential shifts in international competitiveness !

Question : East European countries joining the EU in 2004 (a) Where do they locate on this graph ? (b) If they locate somewhere below the EU tech frontier. . . Log efficiency Sk-Lab one can expect adoption of better technologies in near future. . . What consequences for them ? . . . and for the others ? Log efficiency of Un-Lab

We have to estimate the "state of the art" technical frontier and identify the relative position of each pre-2004 / post-2004 EU countries Caselli and Coleman (A. E. R. , 2006) Using WIOD data for 27 EU countries with a 10 sector disaggregation We make regressions… … and we finally get:

Pre-2004 EU member states

2004 EU entrant states

The experiment? Increase TLP

In the long term equilibrium. . .

Consequences of such a productivity shock? • On East EU countries: obvious ! • On other EU members ? To evaluate these potential effects, we then build/simulate a calibrated general equilibrium model with 10 sectors of activities (some with IRS – monopolistic comp) 27 EU countries (Ro. W is exogenous except for price responsive trade) 2 period (short v. s. long term) decentralized optimal growth Year 2007 SAM, based on EU + WIOD data set, thanks to the work of Álvarez-Martínez and López-Cobo, 2016

B. The General Equilibrium model 27 countries EU 27 + Ro. W Base year : 2007

-- Labor supply allocated to sectors using a CET frontier 2 periods: a short run characterized by rigidities / low mobility a long run characterized by flexibility / high mobility

Endogenous private savings determined from households' intertemporal optimization: Max Note: time aggregation issues in intertemporal optimization models, see Mercenier and Michel (Econometrica, 1994). FOC CES demand system for market goods

3 Allocated to countries using a CET frontier Allocated to sectors within countries using a CET frontier 2 -level CET 2 -level CES demand structure for between countries between sectors within countries

s. t. pub debt constant CES demand system for market goods

5 Competitive game: large group monopolistic competition DSK differentiation elasticity In short run: fixed number of firms In long run: free entry/exit of firms