Introduction

3. Adoption of Sector-Specific

Technologies

Introduction

This chapter provides a deep dive into differences in production technologies adopted by firms in different sectors. Agriculture has been the focus of many studies of technology in the empirical microeconomic literature.1 The effects of cutting-edge production technologies have also captured the public imagination. Images of robots carrying out large-scale manufacturing, drones engaged in agriculture, or automated delivery of goods and services appear in any discussion of Industry 4.0 and frontier technologies. But as described in chapters 1 and 2, this advanced state of technology is not the reality for most firms, particularly in developing countries. Connecting policy makers with the reality of technology used in production is important for identifying and defining key policy priorities that are feasible and relevant in a given context.2

A key challenge for measuring and comparing production technologies is that they are usually specific to particular sectors because they implement sector-specific business functions (SBFs). For example, while land preparation and irrigation are core functions for agriculture, weaving is for apparel, and cooking is for food processing. The Firm-level Adoption of Technology (FAT) survey takes these variations across sectors into account. It not only measures technologies adopted to perform tasks that are common across all firms (general business functions, GBFs) such as business administration and payment, but it also collects data for sector-specific business functions that reflect technology use in core production processes or provisions of services in selected sectors. To account for the fact that the range and sophistication of technologies available—the technology domain—is different in each sector and business function, these sector-specific measures are normalized to the technology frontier in each business function. This provides a comparable measure of sophistication that is relative to the relevant technologies available in each function.

Sector-specific technology measures can also inform the discussion about outsourcing, which is an important aspect of economic development.3 A firm’s decision to outsource a sector-specific task is related to the availability and cost of technologies and the overall capabilities of the firm to perform the task or outsource it. The FAT survey asks whether the business function is performed by the establishment, insourced to another establishment of the same firm, or outsourced. This level of detail allows for further investigation in this topic.