SPREADING KNOWLEDGE AND INNOVATION ACROSS BORDERS
In a world that has become closely integrated, information and innovations spread in the speed of light through many channels. Technological progress is a key driver of improvements in incomes and standards of living. But new knowledge and technologies do not necessarily develop everywhere at the same time. Therefore, the way technology spreads across countries is central to how global growth is generated and shared across countries.
The World Economic and Investment Handbook 2024 takes a close look at how technology travels between countries. We find that the spread of knowledge and technology across borders has intensified because of globalization. In emerging markets, the transfer of technology has helped to boost innovation and productivity even in the recent period of weak global productivity growth.
Indeed, during 1995–2014, the United States, Japan, Germany, France, and the United Kingdom (the G5) produced three-fourths of all patented innovations globally. Following closely, other countries—notably China and Korea started to make significant contributions to the global stock of knowledge during the same period, joining the top five leaders in a number of sectors, this suggests that they are also important sources of new technology, they all constitute the bulk of the technology frontier.
Globalization boosts technological development, the increasing intensity of global knowledge flows points to important benefits of globalization. While globalization has been much criticized for its possible negative side effects, our study shows that globalization has amplified the spread of technology across borders in two ways. First, globalization allows countries to gain easier access to foreign knowledge. Second, it enhances international competition—including as a result of the rise of emerging market firms—and this strengthens firms’ incentives to innovate and adopt foreign technologies.
The positive impact has been especially large for emerging market economies, which have made increasing use of the available foreign knowledge and technology to boost their innovation capacity and labor productivity growth. For instance, over 2004–14, knowledge flows from the technology leaders may have generated, for an average country-sector, about 0.7 percentage point of labor productivity growth per year. This amounts to about 40 percent of the observed average productivity growth over 2004–14. We find that one important factor behind the build-up of innovation capacity in emerging market economies has been their growing participation in global supply chains with multinational companies, though not all firms have benefited as multinationals sometimes reallocate some innovation activity to other parts of the global value chain.