Leapfrogging is a concept used in many domains of theeconomics and business fields, and was originally developed in the area ofindustrial organization andeconomic growth. The main idea behind the concept of leapfrogging is that small and incrementalinnovations usually lead a dominant firm to stay ahead, but sometimes, radical innovations will permit new firms to leapfrog the ancient and dominant firm.[1] The phenomenon can occur to firms but also to leadership of countries or cities, where a developing country can skip stages of the path taken by industrial nations, enabling them to catch up sooner, particularly in terms of economic growth.[2]
In the field ofindustrial organization (IO), the main work on leapfrogging was developed by Fudenberg, Gilbert, Stiglitz and Tirole[3] (1983). In their article, they analyze under which conditions a new entrant can leapfrog an established firm.
That leapfrogging can arise because an establishedmonopolist has a somewhat reducedincentive to innovate because they earn rent from the old technology.[4] This is somewhat based onJoseph Schumpeter's notion of "gales ofcreative destruction".[5] The hypothesis proposes that companies holding monopolies based on incumbent technologies have less incentive to innovate than potential rivals, and therefore they eventually lose their technological leadership role when new radical technological innovations are adopted by new firms which are ready to take the risks. When the radical innovations eventually become the new technologicalparadigm, the newcomer companies leapfrog ahead of the formerly leading firms.
Similarly a country which has leadership can lose itshegemony and be leapfrogged by another country. This has happened in history a few times. In the late eighteenth century, the Netherlands was leapfrogged by the UK, which was the leader during the whole nineteenth century, and in turn the US leapfrogged the UK, and became the hegemonic power of the 20th century.
There are several reasons for this.Brezis andKrugman (1993,[6] 1997[7]) suggest a mechanism that explains this pattern of leapfrogging as a response to occasional major changes in technology. In times of small and incremental technological change, increasing returns to scale tend to accentuate economic leadership. However, at times of a radical innovation and major technological breakthrough, economic leadership, since it also implies high wages, can deter the adoption of new ideas in the most advanced countries. A new technology may well seem initially inferior to older methods to those who have extensive experience with those older methods; yet that initially inferior technology may well have more potential for improvements and adaptation. When technological progress takes this form, economic leadership will tend to be the source of its own downfall.
In consequence, when a radical innovation occurs, it does not initially seem to be an improvement for leading nations, given their extensive experience with older technologies. Lagging nations have less experience; the new technique allows them to use their lower wages to enter the market. If the new technique proves more productive than the old, leapfrogging of leadership occurs.
Brezis and Krugman have applied this theory of leapfrogging to the field of geography, and explain why leading cities are often overtaken by upstartmetropolitan areas. Such upheavals may be explained if the advantage of establishedurban centers rests on localized learning by doing. When a new technology is introduced, for which this accumulated experience is irrelevant, older centers prefer to stay with a technology in which they are more efficient. The changes to technological leadership can reveal the challenges concerning the effects of backwardness on the willingness to innovate or adopt radical and new ideas.[8] New centers, however, turn to the new technology and are competitive despite the raw state of that technology because of their lowerland rents and wages. Over time, as the new technology matures, the established cities are overtaken.
More recently the concept of leapfrogging is being used in the context ofsustainable development fordeveloping countries as atheory of development which may accelerate development by skipping inferior, less efficient, more expensive or more polluting technologies and industries and move directly to more advanced ones.
Leapfrog democracies can refer to countries that have huge developments that more typically advanced countries might only have much later.
The mobile phone is an example of a leapfrog technology: it has enabled developing countries to skip the fixed-line technology of the 20th century and move straight to the mobile technology of the 21st. It is proposed that through leapfrogging developing countries can avoid environmentally harmful stages of development and do not need to follow the polluting development trajectory ofindustrialized countries.[9]
The adoption of solar energy technologies in developing countries are examples of where countries do not repeat the mistakes of highly industrialized countries in creating an energy infrastructure based onfossil fuels, but "jump" directly into theSolar Age.[10]
Developing countries with existing natural gas pipelines in place can use it to transport hydrogen instead, hence leapfrogging from natural gas to hydrogen.[11][12]
A closely related concept is that of "tunneling through" the EnvironmentalKuznets Curve (EKC).[13] The concept proposes that developing countries could learn from the experiences of industrialized nations, and restructure growth and development to address potentially irreversible environmental damages from an early stage and thereby "tunnel" through any prospective EKC. Environmental quality thereby does not have to get worse before it gets better and crossing safe limits or environmental thresholds can be avoided. Although in principle the concepts of leapfrogging (focused on jumping technological generations) and tunnelling through (focused onpollution) are distinct, in practice they tend to be conflated.
The concept of environmental leapfrogging also includes a social dimension. The diffusion and application of environmental technologies would not only reduceenvironmental impacts, but can at the same time contribute to sustainable economic development and the realization of theMillennium Development Goals (MDGs) by promoting greater access to resources and technologies to people who currently have no access. Regarding electricity, currently[as of?] nearly one-third of the world population has no access to electricity and another third has only poor access. Reliance on traditional biomass fuels for cooking and heating can have a serious impact on health and the environment. There is not only a direct positive link between sustainable renewable energy technologies andclimate change mitigation, but also between clean energy and issues of health,education andgender equity.[14]
A frequently cited example is countries which move directly from having notelephones to havingcellular phones, skipping the stage of copper-wirelandline telephones altogether.[15]
Another notable example ismobile payment. China is one of the world's leaders in consumer internet andmobile payments.[16]: 130 In most parts of the developed world,credit cards have been popular since the second half of 20th century but were not widespread in China.[16]: 130 After 2013,Alipay andWeChat began to support mobile payment usingQR code onsmart phones. Both of them have been extremely successful in China and are expanding overseas now.[17] China's technological leapfrogging to mobile payments also led to a boom in online shopping and retail banking.[16]: 130 The expansion ofe-commerce in China is another example of leapfrogging development.[18]: 4 Although China was a latecomer to e-commerce in comparison to other major economies, it has now grown beyond them in both total market size and on a per capita basis.[18]: 4
Leapfrogging can occur accidentally, when the only systems around for adoption are better than legacy systems elsewhere, or situationally, such as the adoption ofdecentralized communication for a sprawling, rural countryside.It may also be initiated intentionally, e.g. by policies promoting the installation ofWiFi and free computers in poor urban areas.[19]
TheReut Institute has carried out extensive research regarding the common denominators of all the different countries that have successfully leapt in recent years. It concludes that to leapfrog a country needs to create a shared vision, leadership by a committed elite, inclusive growth, relevant institutions, a labor market suited to cope with rapid growth and changes, growth diagnostics of the country's bottlenecks and focused reforms as well as local and regional development and national mobilization.
Japan's Low-Carbon Society 2050 Initiative has the objective to cooperate with and offer support to Asian developing countries to leapfrog towards a low-carbon energy future.[20]
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