Adoption barrier, financial imperfection and technology diffusion

Not only do the financial imperfections affect the capability to technology adoption given the condition that knowledge spillover instantaneously (i.e., Li and Yu, 2011), but the financial imperfections themselves are important barriers which affect the speed and range of technology diffusion across countries. This paper constructs a simple framework considering the effect of financial imperfections on technology diffusion. We find that, as an important source of adoption barriers, the country which has higher financial imperfections because of more fragile investment protection will converge into the larger relative technology gap as well as the lower relative income level.