and better target firms, investing in adequate human and financial resources to implement the programs, and implementing good evaluation mechanisms are necessary conditions. The chapter also has reviewed some of the key policy instruments to support t echnology upgrading. While there is some evidence that some instruments are effective in some contexts and countries, there are still large gaps in the evidence, and positive results are very specific to a particular context, which makes it difficult to guide the choice of instrument. A critical objective of direct support instruments is to address information and capability failures. The design and implementation of this type of policy instrument increase in complexity when moving from general to sector-specific business functions, as these require more specialized knowledge support. A critical type of support is related to the financing of technology upgrading projects, given that financial markets in many developing countries suffer from large market imperfections. Working with commercial banks to address this lack of finance can help facilitate technology upgrading, especially for firms that have higher capabilities to adopt but are financially constrained. However, these finance instruments may not work in cases of firms with very low capabilities. Finally, the COVID-19 crisis has been a wake-up call for many businesses around the world about the need to upgrade their technologies, digital and nondigital. The pandemic has increased the incentives of businesses to upgrade, reducing some of the earlier overconfidence about their technological capabilities and making it more likely that they will undertake upgrading programs. Policy makers should seize this opportunity to minimize the risk of an increase in the technological divide across countries and firms, and bring more sustained growth and prosperity to their economies.
Notes
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1.
In the context of financing a technology project, adverse selection is related to the difficulties the financier faces in screening and identifying good projects, while moral hazard is associated with the difficulties in monitoring the implementation of the technology upgrading project, thus transferring the risk of failure to the financier (Cirera et al. 2020).
2.
Cruz, Bussolo, and Iacovone (2018) examine an exporting program in Brazil that advances funds to a business based on historic orders from buyers. They find that the program, which provided a detailed diagnostic and consulting services, had a positive impact on the reorganization of participating firms. This program was designed in response to the fact that many SMEs were not ready to benefit from more traditional export promotion instruments.
3.
Targeting has been an important challenge for government programs supporting businesses during the pandemic. Emerging evidence highlights two main factors associated with mistargeting: (1) barriers to access to policy support, such as information and application costs, which are particularly large for smaller firms; and (2) the inability of public agencies to target the right beneficiaries (Cirera et al. 2021). This difficulty in targeting and the urgency to provide rapid support resulted in universal targeting.
4.
This section draws heavily on Cirera et al. (2020); for a full description of these activities, readers should refer to that publication.
Bridging the Technological Divide
