Technology adoption, adaptation and growth

We revisit the notion of “appropriate technology” considered in Basu and Weil (1998) whereby technologies that are more capital intensive are adopted only after a certain level of capital depth has been achieved. We incorporate the idea by explicitly modelling the choice between two technologies in a heterogeneous agent model with overlapping generations. Both technologies can be improved through 'learning-by-doing' and adaptation of the technology to local conditions. One of the technologies is an 'advanced technology' in that it has potentially greater returns to capital deepening, and also to learning-by-doing and adaptation. However, a critical level of development has to be reached before the technology becomes appropriate; for lower levels of development the less advanced technology is more productive. Depending on initial conditions, a variety of long run outcomes and transitional dynamics are possible, suggesting that “appropriate technology” provides a potential explanation for the diversity of growth and technology diffusion experiences observed in world economies.