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It's not often that a best seller inspires academic research. If anything, it's usually the other way around. But Harvard Business School Associate Professor Diego A. Comin was motivated by reading Guns, Germs, and Steel, Jared Diamond's 1998 Pulitzer Prize-winning book that explores the historical hegemony of Western Europe through the lens of technology and geography.
According to the data, countries have adopted new technologies an average of 47 years after they are invented, with the United States and the United Kingdom leading the way in adoption rates over most of the past two centuries. More importantly, adoption lags account for at least 25 percent of cross-country per capita income differences: in short, the longer the lag in technology adoption for any given nation, the lower the per capita income.
Extensive margins
vs.
intensive
While those findings were significant, Comin was puzzled by one apparent paradox related to the fact that technology adoption lags have diminished dramatically in recent decades, across the globe. For example, the United States launched the Adams Power Station at Niagara Falls in 1895, only a few years after the invention of a three-phase power system. India, meanwhile, didn't adopt electricity until the 1930s. But when it comes to modern technology, the lags tend to be almost identical: both the United States and India adopted cell phone technology in the 1980s. However, the difference in per capita income between those nations remains huge: in 2011, the United States had a per capita GDP of around $48,000, while India's was the equivalent of US$3,600.
So why doesn't the shrinking gap in technology adoption lags naturally lead to a smaller disparity between per capita incomes? Comin says the answer lies in the difference between "extensive" and "intensive" margins. In his aforementioned research, technology adoption was measured according to extensive margins; that is, how long it takes a country to adopt a technology at all. But that research did not account for intensive margins; that is, the extent to which a technology is adopted by the nation as a whole. For instance, the extensive margin of cell phones would measure the gap between the invention of the cell phone and the date when cell phone technology first entered a country. But the intensive margin would measure the number of cell phones in a country relative to that country's population. When applicable, the intensive margin also takes into account the amount of output associated with a new technology, such as the tons of steel produced in blast oxygen furnaces in any given country. Comin focused on intensive margins in his working paper "The Intensive Margin of Technology Adoption," coauthored with Mart Mestieri. Studying the same 15 technologies and 166 countries from Comin's earlier research, they found that while adoption lags have diminished extensively across the globe,
they have not diminished intensively. In other words, while a new technology may reach a third-world country faster than ever before, it's not necessarily reaching the majority of people in that country. Significantly, they found that differences in the intensive margin of technology adoption account for some 45 percent of cross-country differences in per capita income. "This intensive margin has not converged at the same rate of extensive margins," Comin says. "In fact, it has diverged." Taken together, the results of Comin's research with Mestieri and the results of his research with Hobijn, Easterly, and Gong suggest that up to 70 percent of differences in cross-country per capita income can be explained by differences in technology adoption. Comin reports that future research will elaborate on how intensive adoption margins affect growth"We're getting closer at understanding the drivers of technology and its effects on the wealth of nations," he says.