IMF says globalisation intensified diffusion of knowledge

The IMF made a strong pitch for globalisation today, asserting that it has intensified the diffusion of knowledge and technology across borders and helped in spreading potential growth among countries.

The International International Monetary Fund said the productivity spillover is important because, until recently, the production of knowledge and technology has been concentrated mostly in a handful of large industrialised economies, it observed.

"Globalisation has intensified the diffusion of knowledge and technology across borders, helping to spread potential growth among countries and boost it at the global level," the IMF said in its release of the World Economic Outlook ahead of the annual spring meeting of the IMF and World Bank next week.

Noting that innovation sharing has taken place through many channels, including the international use of patents and trade, the IMF said another mechanism through which globalisation appears to have boosted the diffusion of knowledge and technology is by increasing international competition, which in turn has raised incentives to innovate and adopt foreign technologies.

By making increasing use of available foreign knowledge and technology, emerging market economies have boosted their own innovation activity and lifted productivity, the report said.

Indeed, increased diffusion of knowledge to emerging market economies has partly offset the effects of the recent slowdown in innovation at the technology frontier, it added.

More intense diffusion of leading technologies to emerging market economies helps explain why their productivity growth has generally been stronger than in advanced economies, helping to drive cross-country income convergence for many countries in recent years, it said.

"The effects have been substantial: over 200414, knowledge and technology flows from the global frontier explain about 40 per cent of average sectoral productivity growth in emerging market economies," it said.

Noting that there is evidence that technology leaders themselves benefit from each other's innovation, the IMF said this underlines the production and diffusion of knowledge and technology as a key mechanism through which globalisation delivers global benefits.

"And even though until recently much of the production of knowledge and technology was concentrated in a small number of advanced economies, China and Korea have now emerged as significant contributors to the global technology frontier. Therefore, there may be scope in the future for spillovers from these new innovators to the traditional innovators," the IMF said.

While the negative side effects of globalisation have received much attention in public debates, the IMF said there are upsides too: globalisation helps the diffusion of knowledge and technology across borders, spreading their benefits more globally.

From a policy perspective, greater global interconnectedness is thus key to maximising inward technology diffusion and boosting economies' growth potential, the IMF said.

"But as economists have long emphasised, assimilating and productively using foreign knowledge often requires investments in domestic R&D and in human capital, which enhance absorptive capacity," it said.