Will Technology Solve Kenya’s Economy?

Examining the economic impact of increased investment in technology in Kenya.

Advertisements

Introduction

Technology is believed to be the key to the future by unlocking the answers to our problems of today. The level of technology a country has greatly impacts the country’s economy through both the demand and supply side. Recently it was reported by Elizabeth Merab at The Daily Nation that Melinda Gates has launched a new program called Pathways for Prosperity: A New Commission on Technology and Inclusive Development in Kenya. The point of the program will be to figure out ways to help advance technology in developing countries in a way that enriches the economy. Another key part of the program is making sure that all the efforts are equally distributed between the rich and the poor to help close the inequality gap. In this blog I will discuss the current problems facing Kenya’s poverty rate before moving into how technology impacts the economic models of output and income inequality.

Poverty in Kenya

Poverty levels in Kenya are still considerably high compared to other countries today. Currently over thirty six percent of the population in Kenya is living below the poverty line(World Bank). What this means for those living under the poverty line is that they are unable to meet the basic income needed to consume at the standard of living to survive. The issue that Kenya is facing the World Bank states, is that they are unable to transfer their steady growth domestic product(GDP) level to consumption making their reduction to the poverty rate miniscule each year.  This though isn’t their only problem when solving their poverty problem, because Kenya is also facing a massive inequality gap. Meaning that their richest twenty percent of the population makes eleven times more than their poorest twenty percent of the population(Business Daily). Both high poverty rates and high inequality rates are currently hurting Kenya’s economy.

Neoclassical Model and Technology

Having a better grasp on the current problems, we can begin to look at how technology would solve these problems. The World Bank stated that Kenya needed “higher and more inclusive growth rates”, which Melinda Gates believes her program will provide by having technology stimulate productivity. This stimulation of productivity would lead to an increase in GDP and eventually a decrease in poverty due to higher wages and higher levels of employment. To fully understand the impact of technology on Kenya’s economy it is important to first examine the Solow’s Neoclassical Model of Growth. This model shows the country’s economic growth by looking at its labor, capital, and productivity. Looking at the original model with technological constraint shows what Kenya’s steady state of economic growth would look like. The steady state is what all economies are striving for where there is no economic growth because they are at a perfect level where everything is equal.  This is would be marked by k on the graph.

maxresdefault

 

The impact of technology on the economy is best explained by looking at how it would impact it at its steady state. The increase in technology would shift the curve upwards due to an increase in productivity and labor, causing an increase in both the capital and output levels as shown in the diagram below.

maxresdefault-1

What this means is that economy would expand and the growth rate would increase. Increase in technology is believed to then have a positive impact on the reduction of poverty rate of a country. This kind of increase in productivity shown in the graph above will have a positive impact on everyone in the market. This kind of conclusion was also stated in a recent article by the Brookings Institute claiming that “technology can exponentially facilitate the achievement of development goals through rapid scale” (Chan).

Taking Down Inequality

The problem left over from the enhancement of technology would be the inequality gap. The reason this would still be an issue is that Melinda Gates wants to have the technology equally distributed between the rich and the poor(Merab). What this would do is cause everyone to increase their income as shown above at the same rate. This would shift more people over the poverty line, but would also move more people already above the poverty line higher. The gap wouldn’t decrease but just shift upwards as a fallout then from the technology.  The inequality gap doesn’t disappear with an increase in GDP and a decrease in poverty. Inequality gap has to be directly addressed because its deep rooted in the economic history of the country.

Conclusions

In conclusion technology can greatly impact the poverty levels of a country by increasing its productivity and GDP. An issue that can arise is that if technology is equally spread out among the people it won’t help in reducing the inequality in the country. The article states that the commission plans to do research on the best ways to implicate the new technology and hopefully that will help to solve this dilemma. When doing their research the commission should take into account the benefits of starting the technology with the poor before spreading it to the wealthy. Overall though this new program should benefit Kenya greatly in moving them towards a more prosperous economy.

 

Bibliography

Source Article :

Merab, Elizabeth” How Melinda Gates PLans to Promote Growth in Africa”. Daily Nation. January 28, 2018. Web. https://www.nation.co.ke/news/How-Melinda-Gates-plans-to-boost-growth-in-Africa/1056-4282486-nhhn23z/index.html

 

Wide wealth gap leads to calls for pro-poor policies”. Business Daily. August 25, 2014. Web. https://www.businessdailyafrica.com/news/Wide-wealth-gap-leads-to-calls-for-pro-poor-policies/539546-2429628-991358/index.html.

 

Chan, Rosana. “ Foresight Africa viewpoint: rethinking African growth and service delivery: technology as a catalyst.” Brooking Institute. January 12, 2018.Web. .https://www.brookings.edu/blog/africa-in-focus/2018/01/12/foresight-africa-viewpoint-rethinking-african-growth-and-service-delivery-technology-as-a-catalyst/

“Poverty Incidence in Kenya Declined Significantly, but Unlikely to be Eradicated by 2030”. World Bank. April 10, 2018. Web. http://www.worldbank.org/en/country/kenya/publication/kenya-economic-update-poverty-incidence-in-kenya-declined-significantly-but-unlikely-to-be-eradicated-by-2030

 

Author: Econ 416 Student

Entries are contributed by undergraduate students enrolled in Economics 416: Theory of Economic Development at the University of Maryland.

8 thoughts on “Will Technology Solve Kenya’s Economy?”

  1. It is true that technological advancements can help solve the problem of poverty. However, there is no impact on growing inequality. Furthermore, it can even increase if the overall income is inefficiently divided among the population, and the highest 20% of the population get the most of the extra profit. According to the scale of independence principle of inequality, if both the poverty line and all the incomes are multiplied by a certain number, the measure of poverty does not change. Therefore, it is necessary to consider additional policies that need to take place in order to address inequality.

    Like

    1. My comment didn’t originally post :/

      I also think it’s important to point out how/when technology is effective. Most “profitable” technology – such as advanced manfacturing processes and advanced computers for simulation and software development – require not only a distribution of technology, but existing skills and education in place to make use of certain technology successfully. Knoema reports that Kenya adult literacy is currently at 78% (“Kenya Adult Literacy Rate, 1970-2017.”). Moreover UNESCO reports that only 57.84% of secondary school age children we’re enrolled in 2009 and only 4.04% of college age student enrolled in college(UNESCO). I would reason that if the poverty gap carries along with it a great disparity in educational levels, the even spread of technology will be even more deterimental to the inequality gap. This considers that a subsect of the population – more than likely on the lower end of the inequality gap – won’t be able to fully utilize the technology or receive the full benefits.

      Like

  2. While technology can indeed help solve poverty and also potentially boost the economy, Kenya is also a very agricultural based economy. You stated that “starting the technology with the poor before spreading it to the wealthy” could be beneficial. I believe that looking at what technology would essentially increase overall production and capital the most. Output per worker could be effected tremendously by the addition of technology, and I think that should be the main goal here since Kenya relies on agriculture as well. Overall, you were right in saying that this program is moving Kenya in the right direction.

    Like

  3. I totally agree with your statements presented throughout the article. Technology is a great investment in terms of increasing productivity, output, and capital. Technology literally just makes everything easier and allows for people to perform at a more efficient rate. With this being said, it is true that this policy in Kenya could not reduce inequality. If everyone receives the same technology then it just leaves everyone at the same spot relative to one another. In order to reduce inequality, Kenya needs to focus its efforts on the poor population as opposed to the entire population if equality wants to be achieved. If poor farmers receive technology and wealthier farmers do not then this would sort of level the playing field and allow the equality to increase within Kenya. Overall, more policies need to be instituted in order to address the inequality within Kenya and not just this policy instituting technology amongst the Kenyan population.

    Like

  4. I agree with your take in your blog post. Poverty is obviously a major issue in Kenya, and I too believe that technological advancements can go a long way in solving the nations issues. Technology brings a lot of positive changes to both the supply and demand sides of an economy. It simply makes tasks far more efficient for workers, which allows for an increase in productivity. If Kenya is to gain economic footing, making technological advancements will pay far greater dividends than any other possible changes.

    Like

  5. I think there is a missing link from the article to Solow’s model of growth with technology. The model relies on Labor-Augmenting technology, while the Bill and Melinda Gates Foundation focuses on more consumer goods. Basic technologies can improve productivity outside of production, but rarely create the macroeconomic effects in the aggregate enough to truly be seen as economic growth. Now, the introduction of the technologies such as vaccines and mobile banking are innovations that can make the labor force more efficient, it is not exactly the technology that is specified by the Solow Model. Kenya is not a country that is close enough to the technological frontier to truly be an innovator in the consumer technology market. Additionally, due to a deficient domestic market, Kenya is also not a supplier of intermediate goods or ideas. This means that models such as the Romer model do not necessarily apply here and rather would benefit from an analysis in which it is understood that Kenya must promote specific sectors to attain convergence levels of growth.

    I would argue that the income inequality can be attributed to other sources. First, many argue that the MNC’s of the world make it hard for countries to retain their productivity in the domestic economy. Africa is the most pointed out case of this. Another source of income inequality is actually that the production of the manufacturing sector is not efficient. With a greater understanding of the global market and Kenya’s own comparative advantages, policies may be able to change to solve the inequalities.

    Like

  6. The main focus of the Pathways to Prosperity program seem like a great blueprint for economic success within Kenya. My concerns lie in the implementation of the program. Its clear that technology leads to higher productivity and economic growth but I’m curious to how she will improve technology? It seems like there is a lot of ambiguity in what policies or efforts that will be implemented. There is a trade-off between decreasing those in poverty and inequality. I believe though that if Melissa Gates is successful with the program the effects won’t be clear in the short-term but over time we will see positive long term effects leading to a more prosperous economy.

    Like

  7. There was a point made that inequality wouldn’t be eradicated completely because it’s rooted in the economic history – I agree with this statement, but change has to start somewhere, and with the help of the Melinda Gates, they can create new economic history that would decrease inequality and boost the economy as a whole. Kenya is in a tricky situation because new technology would pull greatly help pull them out of poverty, but the problem of inequality is still present. It was alarming that the top twenty percent makes 11x’s the wealth of the poorest. My only question is what kinds of technologies were planned to be implemented … so I looked up the program and learned they plan to include AI, automation, robotics, nanotechnology, etc., all of which should positively impact productivity and GDP. I thought this would have been helpful for readers to get an idea of which sectors Gates would target, and how much they would have impacted the economy.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s