Commodities and Development Report 2021

Escaping from the Commodity Dependence Trap through Technology and Innovation

The 2021 edition of the Commodities and Development Report explores how technological development and innovation can help commodity-dependent developing countries (CDDCs) achieve economic diversification and value addition.

The report, entitled "Escaping from the commodity dependence trap through technology and innovation", highlights that most developing countries are commodity dependent and that their movements into and out of commodity dependence are not random. Once a country becomes commodity dependent, the likelihood of becoming non-dependent is very low. In other words, commodity dependence is a trap, and it entails many serious socioeconomic challenges.

The report shows that commodity dependence is associated with low levels of economy-wide labour productivity, low productivity growth, high volatility of productivity growth and a high frequency of negative productivity shocks. It identifies a large potential for productivity increase in CDDCs through both intrasectoral productivity growth as well as structural change. In this regard, the report argues that technological upgrading and innovation can play important roles in an increase in productivity and economic diversification.

The report highlights that a higher technological level is associated with higher productivity and allows the production of more complex products. A key challenge for CDDCs is their position far from the technological frontier. Diversification into more dynamic sectors might require big "jumps" in innovation. In this context, digitalization, e-commerce and blockchain technologies have great potential to help CDDCs reduce transaction costs, increase productivity and promote structural transformation.

The report identifies enablers of technological transformation that can help CDDCs achieve more diversified economies. These include horizontal enables such as infrastructure as well as vertical enablers such as measures to increase productivity in agriculture. The report argues that the set of policy interventions required to facilitate technological upgrading and innovation must take account of country-specific characteristics and contingencies, as well as external conditions.

The report concludes with suggestions of key measures at the national, regional and international levels that could help CDDCs to escape the commodity dependence trap through structural transformation. In this regard, the report argues that strong political commitment at the national level, regional integration and technology transfer are needed to spur a technology-enabled structural transformation process.