Towards an Understanding of Technical Change in Semi-Industrialized Countries

In industrialized countries, technical change in manufacturing pertains to cost reduction improvements in production processes and to the creation of new products. In SIC’s (semi-industrialized countries), which are characterized by protection, market and information distortions, and rationing, technical change consists mostly of the adaptation of imported technologies to local conditions. The firms operating in these countries try to optimize an objective function, generally of profits or net worth, under various constraints. To some extent, possibilities of substitution exist between directly productive and R&D activities or between investment in new capital equipment and maintenance and modification activities to keep old machinery running and even expanding output. Most frequent constraints include: credit rationing (with severe limitations in the financing of working capital), quotas for the supply of raw material inputs produced by the State, import restrictions, etc. As far as import restrictions, the relevant case seems to be not that of a high tariff, but an outright prohibition of imports of certain materials or equipment, as this will generally demand R&D to modify the received technology. The feasibility of doing so seems to depend strongly on the availability of the required technical skills.