Other Technology Facts

regions tend to have more dispersion of technology, with some firms closer to the frontier and others lagging.9 Intuitively, these results suggest that all countries and regions have firms with low levels of technology sophistication on average, but most productive countries and regions also have firms that adopt and intensively use more sophisticated technologies.

Other Technology Facts

Fact 8. There is a large variation in technology sophistication within firms, and it is positively associated with regional productivity.

There is a larger variation in technology sophistication within firms than across firms. The findings from Cirera et al. (2020a) suggest that firms that are relatively closer to the frontier on average use more sophisticated technologies for some functions but not for others. Cirera et al. (2020a) explore this topic in more detail with data from Brazil, Senegal, and Vietnam. The analysis shows that the paths of technology upgrading are different across business functions, reflecting the existence of heterogeneous costs and benefits of the different available technologies. Moreover, the study shows a positive relationship between within-firm variance and productivity across countries and regions. Figure 2.11 plots the average within-firm variance in each of the 44 regions against the log of regional productivity. The figure reveals a strong positive correlation between both variables (0.76).10

Fact 9. Leapfrogging a technology in a business function is rare.

Technology upgrading by firms is mostly a continuous process. The technology disruption caused by the diffusion of mobile phones is a prominent example frequently used to illustrate the process of leapfrogging.11 The first mobile phone call was made in the early 1970s, but it was not until the 2000s that the technology started to diffuse rapidly across middle- and lower-middle-income countries, disrupting the diffusion of fixed-line telephones (figure 2.12). Low-income countries jumped directly to the new technology. The successful case of telecommunications shows the potential for developing countries to benefit from leapfrogging, especially with digital technologies.

Using large firms as a proxy for early adopters of technology,12 panel a of figure 2.13 shows that the pattern observed in firms’ use of mobile versus fixed-line phones is consistent with leapfrogging. However, this pattern is not maintained for other technologies.13 In fact, leapfrogging is not commonly observed across technologies used by firms across different business functions. Indeed, the adoption and use of many specific technologies by firms tend to follow a mostly continuous process (with incremental improvements), rather than disruptive patterns.