Diffusion of Development: Where is Armenia?

by Ani Harutyunyan, Guest Blogger

past,present, futureOne of the key determinants of economic performance of a country is the level of its technological advancement. Technological innovations, however, are highly concentrated. More than 80 percent of the world’s research and development (R&D) expenditure are undertaken by OECD countries and United States alone takes vast share of it, making itself the technological leader of the world (OECD, 2004).

Poor countries are poor largely because of their low technological advancement. However, the problem is not primarily due the lack of innovation in those countries, since the technologies that could make these countries richer do exist and are used elsewhere in the world. The problem, instead, is the (rather slow) speed with which the less advanced countries adopt the technology from their more advanced counterparts.

It appears that there are obstacles that prevent the most productive technologies from spreading to less advanced countries. Most of those obstacles are due to deep rooted cultural, historical, and geographical differences with the frontier economy, which create long-term barriers for diffusion of development by hindering the exchange of ideas and impeding the flow of technologies.

Recent research by Spolaore and Wacziarg (2009) shows that cultural, historical, and geographical differences relative to the US explain much of the current variation in economic development across countries. In other words, one of the reasons that some countries are richer and others are poorer is because some countries happen to be culturally, historically, and/or geographically close to the US and have the advantage of benefiting from diffusion of development, while others face barriers to diffusion of innovations from the technological leader.

What is the position of Armenia relative to the US, the technological frontier of the world, and how does Armenia fare relative to other countries in this respect?

In order to capture cultural differences, genetic distances are used as a proxy. The idea is that culturally transmitted traits have led to divergence between populations over the course of history, which introduced barriers to the diffusion of technologies across societies. And the diversion of culturally transmitted traits is captured by genetic distance between populations. Alternatively, World Value Survey (WVS), presents a cultural map that locates countries based on their major beliefs and values.

Among around 100 countries in the dataset, Armenia is the 44th closest country to the US in terms of genetic distance and 87th according to WVS cultural map. In terms of geographical distance Armenia is much further compared to 220 countries in the dataset, 122nd. The fact that Armenia does not share any common history (e.g., colonial relationship, part of the same bloc or alliance) with the US puts it even further away from the frontier.

Instead, Armenia shares the highest cultural proximity with the Arabic countries in terms of genetic distance, and with several post-Soviet and Eastern European states according to WVS cultural map. Historical, as well as geographical, strongest ties are with former Soviet Republics, Turkey, and Iran.

It turns out, Armenia is not among those “lucky” states that are close to the technological frontier (culturally, historically, and/or geographically) and are able to benefit from spillovers. Does that mean that Armenia is subject to the “curse of the past” and will be unable to break the cycle of path-dependency?

While implications of culture, history, and geography do not have to be long-lasting going forward, it does seem that there are long-term barriers imposed on Armenia through these factors. The lesson is thus not to build up the existing long-term barriers against the “technological frontier “and instead undertake actions to strengthen the short-term channels which may help weaken the impact of existing long-term barriers.

Yes, there are short-time channels. Although, being culturally, geographically, and historically far from the US, Armenia does have links connecting it to the “technological frontier” that other similar countries do not possess: it is the Diaspora. As Kerr (2008), Saxenian (2002, 2007), and others document, the existence of ethnic scientific and entrepreneurial communities in the US significantly improves technology transfers to their home countries. Diaspora is able to overcome most of the obstacles created by cultural and historical barriers.

For starters, Armenia should recognize the existence of the “curse of the past” and move to reduce the gap between itself and world’s “technological frontier”. To accomplish this, policymakers need to identify any possible channel that will allow existing and new tech advancements into the country. For the case of a country like Armenia, the role of Diaspora professionals is crucial as a catalyst in this process of technology transfer. Examples of Israel, India, South Africa that implemented formal mechanisms to facilitate the flows of knowledge (such a formation of virtual knowledge networks and promotion of short-term physical returns of emigrants) should be studied and applied. But above all, business environment and property rights need to be significantly improved if this is to happen.

 

Ani Harutyunyan is a PhD candidate in Economics at Southern Methodist University. Prior to moving to the United States, she was a doctoral student at the University of Zurich. Her Master’s thesis, which she defended in the International School of Economics in Tbilisi, applied a game theoretic approach to the resolution of the Artsakh problem. She did her undergraduate studies in Mathematical Methods and Operations Research at the Armenian State University of Economics in Yerevan.

 

References

Kerr, W. R. (2008). Ethnic scientific communities and international technology diffusion. The Review of Economics and Statistics, 90(3), 518-537.

OECD (2004). Science and Technology Indicator Scoreboard.

Saxenian, A. (2007). The new argonauts: Regional advantage in a global economy. Harvard University Press.

Saxenian, A. (2002). Silicon Valley’s new immigrant high-growth entrepreneurs. Economic development quarterly, 16(1), 20-31.

Spolaore, E., & Wacziarg, R. (2009). THE DIFFUSION OF DEVELOPMENT. Quarterly Journal of Economics, 124(2).

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