Innovation in industry in the developing countries is severely constricted by low investment rates, high interest rates and low profit rates. Relocation of production processes to low-cost areas abroad is only viable as long as profitability holds up, but quite the reverse is taking place.
Commercial technological flows have fallen or stagnated for all groups of developing countries from the peak reached in 1981, in contrast to dynamic growth during much of the 1970s. Most indicative of this slow-down is the behaviour of imports of capital goods which actually declined by 10% for developing countries as a group between 1981 and 1986 as compared with the period 1970-1981 during which an average growth of over 20% per annum was experienced. Geographically, the decline was concentrated in developing America and Africa. Asian countries as a group continued to experience an increase in capital goods inflows, but at a drastically reduced rate compared with the 1970s.