Measuring the Diffusion of Technologies Through International Trade

Technological advancements affect economic growth, income distribution and levels of unemployment. However, quantifying the pace of technological diffusion is problematic. This paper develops a new measure of technological progress by estimating the high-skill content of imports using industry-level, bilateral trade data. Intuitively, during periods of trade liberalization, a higher skill content embodied within imports will lead to a faster change in the arrival rate of new technologies. Trade accelerated since the 1980s and with that came a diffusion of new technologies into developing countries. By utilizing the industry-level trade data in conjunction with the high-skill factor content of each industry, a measure of technological diffusion is developed using a theoretically consistent gravity model. This measure is highly correlated with other measures of technological progress and provides a new data set for a large number of both developed and developing countries. How the high-skill content of imports increased is analyzed for countries across the development spectrum. This measure of technological progress is applied to income inequality. It significantly increases inequality, consistent with theoretical expectations, and provides an additional avenue in how to measure technological progress.