Technology, development and welfare: two essays in international trade and development economics

My PhD thesis seeks to answer two important questions in a world where the spread of technology from the North to the South has accelerated as never before, and most emerging countries are experiencing large productivity improvements. First, should advanced countries welcome productivity improvements in their backward trading partners? And second, what are the factors that affect a country’s capacity to absorb foreign technology? Chapters 1 and 2 contain a short outline of the questions motivating my research, and an overview of the existing literature on international technology transfer, welfare and absorptive capacity. In chapter 3, I investigate the welfare effects that developed countries experience after productivity improvements occur in their backward trading partners. I use a two-country model featuring pro-competitive effects of trade, where one country has better technology than the other. I model the technology advantage of the leading country by assuming that the productivity distribution its firms draw from stochastically dominates that of the laggard country. Calibrated to match aggregate and firm level statistics of the US economy, the model predicts that the country with better technology has a higher productivity cutoff level, higher average productivity and higher welfare. Productivity improvements in the backward country generate selection and raise welfare everywhere, with both the selection effect and the positive welfare effect being stronger in the laggard country. Finally, trade liberalization is associated with more selection and higher welfare in both the leading and the laggard country. In chapter 4 (co-authored with Michael Rochlitz), we investigate differences in and determinants of technical efficiency across three groups of OECD, Asian and Latin American countries. As technical efficiency determines the capacity with which countries absorb technology produced abroad, these differences are important to understand differences in growth and productivity across countries, especially for developing countries which depend to a large extend on foreign technology. Using a stochastic frontier framework and data for 22 manufacturing sectors for 1996- 2005, we find notable differences in technical efficiency between the three country groups we examine. We then investigate the effect of human capital and domestic R&D, proxied by the stock of patents, on technical efficiency. We find that while human capital has always a strongly positive effect on efficiency, an increase in the stock of patents has positive effects on efficiency in high-tech sectors, but negative effects in low-tech sectors. Finally, chapter 5 sums up the main results and outlines possible future research directions.