Discussion Paper

The role of trade in technology diffusion

Abstract: This paper develops a two-country model in which trade is central to the process by which technology diffuses from the innovating country (North) to the backward country (South). Innovation in North leads to the introduction of higher-quality equipment goods that South can import only after some resources have been spent to adapt those equipment goods to the local conditions of South. Barriers to trade and policies that increase the cost of adapting equipment goods to the local environment decrease the rate of technology adoption, leading to a lower steady state relative income level in South. The model is calibrated to quantify this negative impact of barriers to trade and technology adoption on relative income levels and explore some additional implications of the model.

Keywords: Developing countries; Free trade; Technology;

Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Discussion Paper / Institute for Empirical Macroeconomics

Publication Date: 1996

Number: 114