Question

How has technology contributed to globalization of markets? How has it challenged traditional social, political, cultural, and economic systems?

Answer 1

Technological advancement is a key driver of raising wages and living standards. But it is not always everywhere and at the same time that new knowledge and innovations evolve. The way in which technology spreads across countries is therefore central to the way in which global growth is generated and shared across countries. Indeed, during 1995–2014, three-fourths of all patented innovations were produced worldwide by the United States, Japan, Germany, France, and the United Kingdom (the G5). Other large countries particularly China and Korea have started making significant contributions in recent years to the global information stock, entering the top five leaders in a number of sectors.

The growing frequency of the flow of international information points to significant advantages of globalization. Although globalization has been widely criticized for its potential negative side effects, our study shows that globalization has, in two ways, accelerated innovation spread across borders. First, globalization makes it easier for countries to access foreign knowledge. Second, it enhances international competition including the rise of emerging market firms and this strengthens the incentives of firms to innovate and embrace foreign technologies.

Increased knowledge and technology transfer to emerging market economies has partially offset the effects of the recent technology frontier innovation slowdown and helped drive income convergence for many emerging economies. In comparison, the innovation downturn at the frontier has more affected advanced economies.

Globalization provides a key benefit— it facilitates the diffusion of knowledge and technology, helping to spread the potential for growth across countries. Yet interconnectivity is not enough per se. Foreign knowledge assimilation and the ability to build on it most often requires know-how in science and engineering. Investments in education, human capital, and domestic research and development are therefore essential to build the ability to absorb and use foreign knowledge efficiently. It also needs an appropriate level of protection and respect for intellectual property rights, both domestically and internationally, to preserve innovators ' ability to recover costs.