## From Adoption to Innovation: State-Dependent Technology Policy in Developing Countries

_IMF Working Papers, July 19, 2024_

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**Canonical URL:** [From Adoption to Innovation: State-Dependent Technology Policy in Developing Countries](https://www.imf.org/en/publications/wp/issues/2024/07/18/from-adoption-to-innovation-state-dependent-technology-policy-in-developing-countries-552105)

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## Bibliographic details
- Authors: Jaedo Choi, Younghun Shim
- Published: July 19, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400281341.001

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### Key empirical findings
- Greater productivity gaps with foreign firms correlate with faster productivity growth after adoption, despite lower fees.
- Non-adopters increased patent citations to foreign sellers, suggesting knowledge spillovers.
- Korea’s historical experience shows a transition in policy from adoption subsidies toward innovation subsidies that substantially contributed to growth and welfare.

### Model and mechanisms
- Built a two-country growth model with innovation and adoption to capture dynamics across development stages.
- As productivity gaps narrow:
  - Productivity gains and spillovers from adoption diminish.
  - Foreign sellers strategically raise fees due to intensified competition.
  - Adoption subsidies become less effective because higher fees and smaller spillovers reduce returns to adoption.

### Policy implications and optimal policy interactions
- State-dependent technology policy: prioritize foreign technology adoption when productivity gaps are large; shift toward supporting domestic innovation as gaps narrow.
- Adoption subsidies are effective in early stages with large gaps but lose effectiveness as the economy develops.
- The model explores the interaction between optimal technology policy and import tariffs; strategic responses by foreign sellers affect subsidy effectiveness.

### Empirical context: Korea
- Historical technology transfer data from Korea motivated the empirical and theoretical analysis.
- Evidence from Korea supports:
  - Faster productivity growth associated with adoption when gaps with foreign firms were large.
  - Knowledge spillovers to non-adopters via increased patent citations to foreign sellers.
  - The policy shift from adoption subsidies to innovation subsidies played a substantive role in Korea’s growth and welfare improvements.

### Publication and document specifics
- Authors: Jaedo Choi, Younghun Shim
- Date: July 19, 2024
- Pages: 68
- Volume: 2024
- Issue: 154
- Series: Working Paper No. 2024/154
- DOI: https://doi.org/10.5089/9798400281341.001
- Stock No: WPIEA2024154
- ISBN: 9798400281341
- ISSN: 1018-5941

*From Adoption to Innovation: State-Dependent Technology Policy in Developing Countries — Jaedo Choi and Younghun Shim*

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_Source: https://www.imf.org/en/publications/wp/issues/2024/07/18/from-adoption-to-innovation-state-dependent-technology-policy-in-developing-countries-552105_