Absorbtive Capacity and its Influence on Economic Dynamics

In recent years researchers tend to use the term “absorptive capacity” more and more often in analyzing economic growth and in analyzing the differences between developed and developing countries. Most developing countries are at the stage of imitation – the state which prevents the country from creating its own technology that could compare in quality to the leaders due to institutional imperfection, lack of physical and human capital, and absence of proper funding. Despite the growing role of absorptive capacity in explaining long-term economic dynamics, the research on this phenomenon remains a difficult research problem. First of all, there is a large number of definitions for “absorptive capacity”, which presents the need to distinguish the theoretical bases of the concept of technology borrowing process on the aggregate level. Secondly, there is no universal methodology for calculating the effectiveness of foreign experience adaptation in literature, which leads to insufficient coverage of key factors that may influence the absorptive capacity. Thirdly, the absorptive capacity is often used as an explanatory variable for economic growth, however, there is barely any research on the impact of social-economic factors on the absorptive capacity dynamic. The main goal of this work is to identify the factors that influence the absorptive capacity of countries and evaluating the impact of these factors on long-term economic growth. In order to achieve this goal, the following tasks should be completed: firstly, an overview of academic literature should be done to identify the theoretical bases of the term, to discover a relevant method for calculating the technology borrowing effectiveness marker, with showing advantages and disadvantages of different methods and identifying the regressors for the empirical part of the research; secondly, a data collection should be done to conduct the practical part of the research; providing the results using the regressive analysis (panel data). This work is one of the first to regard absorptive capacity as a dependent variable, which provides opportunities to identify recommendations for developing this channel of accumulating technologic experience in developing countries; a methodology for calculating the marker is proposed as well. Upon considering the TFP dynamic, an empirical model is built in which the included factors reflect different sides of technologic progress, while most empirical research is usually focused on only one of the knowledge acquiring channels. The main results of this work are the positive influence of the economic freedom index on the marker of absorptive capacity and the negative influence of the share of agriculture. Regressive analysis of economic growth rate showed the positive influence of absorptive capacity, which becomes significant in the total sample and in the sample for developing countries, as well as the positive influence of R&D investment.