Dependence on imported technology

Non-industrialized countries are dependent upon industrial countries for a varying but large proportion of their capital equipment. In normal circumstances, the would-be manufacturer in a developing country has fairly free access to plant and machinery sources, subject always to the disadvantage of being much less familiar with the market than his counterpart in the industrial country. There are times, however, when the capacity of the machine-making industry is pre-empted because of events in industrial countries, and the dependence of less developed countries then becomes a major obstacle to growth. The situation appears even more unfortunate because at such times the supply of finished consumer goods from industrial countries is also likely to be restricted, and opportunities for the expansion of manufacturing industries substantially increased. Importation of second-hand machinery and use of equipment discarded by concerns in industrial countries also tends to result in high-cost production. In this way, shortage of capital goods has from time-to-time hindered industrialization, at least in its early stages when the developing countries have not been in a position to produce much of their own equipment.

A relic of the older pattern of denying newer, more productive machinery to developing countries survives in the case of special types of equipment which are not sold by the makers but are leased to users for a fixed annual rental and a royalty which varies with the machine's output.