Technology Sophistication across Establishments

Technology Sophistication across Establishments Diego A. CominXavier CireraMarcio Cruz Finance, Competitiveness and Innovation Global DepartmentJanuary 2025 Policy Research Working Paper11051 Abstract This paper examines technology sophistication in estab-lishments.To comprehensively measure technologysophistication, a grid is created that covers key businessfunctions and the technologies used to conduct them. Ana-lyzing data from over 21,000 establishments in 15 countries,the authors find that the most widely used technology isusually not the most sophisticated available in the business function. There is significant variation in technology sophis-tication across and within countries, explaining 31% ofproductivity dispersion and over half of the agriculturalproductivity gap. The sophistication of widely used tech-nologies is more relevant for productivity than the mostadvanced technologies. More sophisticated technologies areappropriate for both developed and developing countries. The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about developmentissues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry thenames of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely thoseof the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank andits affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. TECHNOLOGY SOPHISTICATION ACROSS ESTABLISHMENTS Diego A. CominXavier CireraMarcio Cruz We thank David Baqaee, Jan DeLoecker, Mary Hallward-Driemeier, Apoorv Gupta, JohnHaltiwanger,Maurice Kugler, Bill Maloney, Martha Martinez Licetti, Paolo Mauro, DenisMedvedev, Dani Rodrik,Giacomo Ponzetto, Tommaso Porzio, Doug Staiger, Edouard Schaal,Chris Snyder, Eric Verhoogen,and seminar participants for insightful comments. Kyung Min Leeactively participated in earlier draftsof this paper and we are indebted to him. Harneet Singhprovided outstanding research assistance.We thank Aman Mahajan, Magda Malec, MarianaPereira, Santiago Reyes, Antonio Martins Neto,Soumya Agrawal, and Adrian Forest for inputs tosections of the paper. We also thank the industryexperts and partner institutions for their support indesigning and implementing the survey. An extendedlist of acknowledgements is provided in theappendix. Financial support from the infoDev Multi-DonorTrust Fund, the Korea World BankGroup Partnership Facility (KWPF), and the Competitive Industriesand Innovation Program(CIIP) is gratefully acknowledged. This manuscript supersedes Cirera et al.(2020), Cirera et al.(2021) and Cirera, Comin and Cruz (2024). The views expressed in this paperare solely those ofthe authors and do not necessarily reflect those of the World Bank Group, its Board,or the NationalBureau of Economic Research. © 2025 by Diego A. Comin, Xavier Cirera, and Marcio Cruz. All rights reserved. Short sections oftext, not to exceed two paragraphs, may be quoted without explicit permission provided that fullcredit,including © notice, is given to the source. JEL No. O1, O3, O4 NBER Working Paper No. 33358. Diego A. CominDartmouth CollegeEconomics Department6106 Rockefeller Hall, Room 327 Hanover, NH 03755and CEPRand also NBERdiego.comin@dartmouth.edu Marcio CruzIFC, World Bank Group2121 Pennsylvania Avenue, NWWashington, DC 20433marciocruz@ifc.org Xavier CireraThe World Bank1818 H ST NWWashington, DC 20433United Statesxcirera@worldbank.org 1Introduction Technology is central to some of the most fundamental economic questions. Yet, our un-derstanding of these issues often depends on indirect and limited measures. A long tradition,dating back to Ryan and Gross (1943) and Griliches (1957), has characterized technologyin establishments by the presence of a few (typically one) advanced technologies. This ap-proach faces several limitations. First, the number of technologies is very small comparedto those used in an establishment.Additionally, the tasks where establishments use thesetechnologies are neither comprehensive or representative of the business functions conductedin an establishment. Second, measures based on the presence of advanced technologies donot provide information on how establishments without them produce. In particular, we donot know how sophisticated the technologies used are relative to the frontier. This concernis particularly relevant in developing countries where advanced technologies are less widelydiffused. Third, traditional measures do not capture how intensively a technology is used,which is crucial to explain income divergence across countries (Comin and Mestieri, 2018).This omission limits our understanding of whether establishments predominantly use themost sophisticate