of the developing countries are primarily due to 

 mistakes in the choice of technology. 



Nevertheless, there are examples that indicate that 

 a greater sensitivity is needed to the effects of 

 technological choices. Even when the technological 

 change substantially increases output, it may have 

 negative effects on employment and other aspects of the 

 economic and social structure (for example, when 

 tractors are introduced into grain production systems 

 in areas with a surplus supply of labor) . 



It should also be recognized that the choice of 

 technology in developing countries can be affected by 

 policies adopted to protect labor or to provide 

 incentives for investment. Minimum wage laws, social 

 insurance programs, and unions all have important 

 justifications, but their impact can increase the 

 effective cost of labor and thus create incentives to 

 substitute capital for labor. Investment incentives 

 that lower the price of capital have a similar effect. 



How to develop technologies that are "appropriate" 

 to the goals of developing nations is the subject of 

 wide controversy. It is unlikely that enterprises in 

 developed nations will voluntarily invest substantial 

 resources in the creation of new technologies designed 

 primarily for use in small foreign markets. For this 

 reason, new technologies suited to developing nations 

 are most likely to be created by local business firms 

 which would then have a stake in the outcome. Thus 

 most of the initiatives presented in this chapter, 

 which are primarily designed to enhance the 

 capabilities of developing nations to create and use 

 their own technologies, would also serve indirectly to 

 stimulate the creation of "appropriate technology." 



However, local firms in developing nations, both 

 publicly and privately owned, must have incentives to 

 develop the capabilities to create their own 

 technologies. For numerous reasons, present incentives 

 are inadequate. Investment in new technology is risky, 

 and the magnitude of investment required to meet a 

 specified goal is uncertain. Often the domestic market 

 is too small for a firm to obtain a return that would 

 justify substantial investments in the creation of new 

 technologies. Both of these problems could be reduced 

 if effective regional markets are created among 

 developing nations. However, only the developing 

 nations themselves can create the incentives necessary 

 to induce local enterprises to invest in new (and 

 "appropriate") technology. 



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