Will Technology Solve Kenya’s Economy?

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

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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.

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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.

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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