The Effects of Technology in Developing Contries

This week I decided to look at a paper written in the National Graduate Institute for Policy Studies. This paper was written by Yuqing Xing and Bo Zhang and it discusses the issue of technological advances in developing countries and the effects on developed countries with use of the Ricardian Model. I will summarize and explain the results of their research in the remaining of this  blog.

 To determine the effects of technological bias growth in a developing country, the authors assume there are two countries. Country One is developed and specialized in good one(comparative advantage). Country Two is developing and specialized in good two(comparative advantage).  At this point, if these two countries trade, they will both gain from trade and overall welfare will rise in both countries. We have seen this in class with how the indifference curve shifts out. Next, the Authors assumed that Country two has a technological advancement in good one that now allows them to produce both goods. At this point, the welfare of Country One is a decreasing function of the production of good one in Country Two. The authors then made it clear that even before Country Two completely catches up to the production of Country One in good one, the welfare of Country one is falling. The Authors next talk about how the size of the countries can play a part in the effect on welfare in this situation. If Country One is a smaller country and Country Two is large, Country Two can have a less significant advancement and still have a large effect on Country One compared to if Country Two was small and Country One was large. This is because with a larger population it is easier to produce more than if you have a smaller population.

To better illustrate their finding, I will briefly explain why this happens in terms of what we have discussed in class. As one country has technological advances, the PPF shifts out. With this shift they can produce more. When they can produce more, it puts more of the product on the market. If this happens, they can produce enough of the original good to use themselves as well as export while at the same time producing the good they were importing. This would lead to a trade imbalance with the country they are exporting to and lead to a drop-in welfare of that country because the amount exported drops thus leading to a decline in the production, this leading to the production curve becoming closer to the original PPF without trade and the indifference curve shifting to the left.

Overall, this was a very informative paper that shines light upon the issues and threats that a technological advance in developing countries could cause. This could be very useful with analyzing somewhere like India and its effect on the American welfare. An area I believe the paper could have done a bit better in was presenting data. The article brought forth a lot of equations to explain the results, but it didn’t exactly show any physical number or data. I also wish the paper had shown graphs for to better illustrate the results.

References

Xing, Y., & Zhang, B. (2018). Population, Technological Progress and the Welfare of the North-South Trade: A Revisit of the Classic Ricardian Model (No. 18-10). National Graduate Institute for Policy Studies.