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Information Technology Policy and the Digital Divide

Lessons for Developing Countries

Edited by Mitsuhiro Kagami, Masatsugu Tsuji and Emanuele Giovannetti

The proliferation of new information technologies throughout the world has raised some important questions for policymakers as to how developing countries can benefit from their diffusion. This important volume compares the advantages and disadvantages of the IT revolution through detailed studies of a variety of developed and developing nations and regions: Argentina, Estonia, the EU, India, Japan, Korea, Mexico, South Africa, Thailand and the USA.
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Chapter 5: Software in India: Development Implications of Globalization and the International Division of Labour

Paul Kattuman and Arnab Bhattacharjee


Paul Kattuman and Arnab Bhattacharjee 1. INTRODUCTION The traditional view of economic growth is that it is driven by savings, investment and capital intensity. The growth of East Asian countries has been attributed to these factors. A counter-view argues that the micro foundations of growth, and thus the proximate cause of differences between national economic performances, lie in capabilities of firms for technological advances. Accumulation of technical knowledge is crucial in economic development; cumulative increases in firm level capabilities attract investment and drive growth. If capital markets work well, capital will flow toward capable firms, and toward the economies that have more capable firms. In each region, firms would compete to enter into gainful activities. If there were wage differentials, and if labour were not free to move, firms would shift their activities to low wage regions. High capability firms would be distributed uniformly across regions. In practice, however, there are stable differences across countries; real wage differentials persist, more capable firms do not move readily to low wage regions, and firms in poorer regions do not readily acquire higher capability. Will the race for capability enhancement lead to convergence between national economies? What conditions will lead to economic polarization of the world? The convergence/non-convergence issue has gained increasing attention in both developed and developing countries, particularly in the context of internationalization of economic activity and international division of labour. What are the implications of globalization for developing countries? At the same time, what are the implications for the North...

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