Market Structure, Factor Endowment and Technology Adoption

A simple model is developed to explore how technology adoption depends on factor endowment when the new technology is more capital-intensive and privately accessible. The endogenous non-competitive market structure of the final good indirectly distorts factor prices in general equilibrium, which results in a non-monotonic impact of capital endowment on both the static allocation e¢ ciency and the dynamic pattern of industrial upgrading. More specifically, the static market equilibrium achieves social efficiency when capital endowment is sufficiently large or sufficiently small, irrespective of the resulting market structure. Inefficiency arises only when capital falls onto an intermediate range, in which case the private technology is under-utilized to depress the relative price of capital. Moreover, an increase in the initial capital endowment may delay rather than facilitate the adoption of the capital-intensive technology. Private accessibility to the new technology may also result in premature adoption, over-utilization and multiple equilibria. Welfare- enhancing policies are discussed.