Technology Versus Economic Development

Technology Versus Economic Development

September 2016


A recent FT article raises interesting questions about economic growth in the age of automation:

can emerging economies still hope to follow the traditional route to prosperity that the developed world has relied upon since Britain’s industrial revolution in the 18th century? Or will robots assume many of the jobs that once pulled hundreds of millions out of poverty?

The concern is that “The spread of robots makes it much harder for developing countries to get on the ‘escalator’ of economic growth”. And I think there’s certainly something to this. However, I think it’s useful to consider a few ways in which technology will disproportionately help developing countries.

One problem in developing countries are informal marketplaces filled with informational problems. This is especially true as it related to tourism. If you travel to a developing country, it can be a challenge purchasing reliable services that aren’t of low quality or ripping you off. Is the cab driver overcharging you? Is the hotel you’re staying at safe? Even when explicit ripoffs or safety aren’t a concern, observing quality is often diffcult throughout the service sector.

By now you can probably guess where I’m going with this. Online marketplaces can help reduce the informational problems in a variety of ways. Yelp, Airbnb, and Uber all provide customers with better information about quality, and provide a clear recourse for bad service, which in turn generates better information. They also make payment much more transparent and safe, often reducing the need for cash. And in some cases, like with Uber’s mapping, show exactly what service should be provided. 

Another issue in developing countries is poor regulation. This is closely related to the aforementioned informational asymmetries. The taxi industry is traditionally a good example where informational problems usually justify regulation of safety, prices, and other aspects of service. In developing countries where poor regulation and corruption are often a big issue, striking this balance correctly is going to be difficult. The good news is that online platforms, marketplaces, matching apps or whatever you want to call them often obviate the need for such regulation. 

Drones are another area that should benefit rural and remote areas more than urban and dense areas, and therefore should help some developing countries. If drones make low cost, door-to-door shipping easier that will help rural businesses reach customers and suppliers at lower cost and decreasing the number of middlemen.

In the broadest sense, I think technology is just beginning to help make the service sector much more productive. And it’s doing so in a way that benefits small entrepreneurs, helps reduce informational problems, increases transparency and safety, and reduces the need for trust. This seems likely to benefit developing countries disproportionately.

It’s not clear yet how much these technologies will actually help developing countries grow more, so this is speculative. On the other hand, so is the claim that robotics will hinder economic development. The question is whether new and developing technologies will on net help or hinder economic development? I see factors on both sides of the ledger, and no reason why we should only be discussing the downsides like we mostly are now.


This article was written by Adam Ozimek from Forbes and was legally licensed through the NewsCred publisher network.

BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole and/or its various subsidiaries generally.  This material does not constitute a recommendation by BNY Mellon of any kind.  The information herein is not intended to provide tax, legal, investment, accounting, financial or other professional advice on any matter, and should not be used or relied upon as such.  The views expressed within this material are those of the contributors and not necessarily those of BNY Mellon.  BNY Mellon has not independently verified the information contained in this material and makes no representation as to the accuracy, completeness, timeliness, merchantability or fitness for a specific purpose of the information provided in this material.  BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material.