Impact of Trade Openness and Technology Transfers on Growth: Panel Data Investigation for Developing Countries

The study investigates the causal impact of trade openness and technology transfers on productivity growth in developing countries. We introduce the concept of technologically intensive trade openness (TITO) that can be measured by country approach as imports from highly innovative countries to GDP (employed in the study) or product approach as imports of highly technological products to GDP. We use panel data methods with fixed effects in combination with instrumental variable analysis. We find the time-varying instruments for TITO, among others: one-year lagged industry value added in highly innovative countries weighted by bilateral import shares of a developing country with each innovative country. Our results report that the technologically intensive imports and R&D spillovers from highly innovative countries stay the major channel of international technology diffusion affecting productivity growth in developing countries. On the contrary technologically non-intensive imports (imports from the less innovative countries) tend to have petty or even negative effect on productivity growth. The findings are consistent with the new growth theory and some recent empirical studies. Also educational attainment, domestic R&D activity, use of foreign intellectual property rights and less evidently institutional improvement can positively and substantially increase TFP in a developing country. We also find the interactions between TITO and educational attainments as well as TITO and use of foreign intellectual property rights.