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Diffusion of Technology and Convergence of Income among Countries


  • Sumru Oz

    () (Koc University-TUSIAD Economic Research Forum)


Theoretical models of growth reveal that either exogenous or endogenous, technology is the main driving force behind the long-run economic growth. Furthermore, in the endogenous growth framework, diffusion of technology is the basic mechanism of per capita income convergence among countries. This paper analyzes the per capita income convergence implications of foreign direct investment (FDI), considering that the latter is an international technology diffusion channel. Although FDI appears to be an important channel in the diffusion of technology models theoretically, empirical evidence related to the effect of FDI on growth is ambiguous. By applying the approach of Ben-David (1996), which focuses on convergence among countries grouped with respect to their mutual trade, this paper presents evidence that per capita income convergence exists among FDI home and host countries using three different convergence measures. The relatively higher speed of convergence prevailed among countries linked by FDI justifies the technological spillovers accompanied by FDI and provides evidence that FDI inflow is a mechanism of per capita income convergence among countries by allowing the diffusion of technology.

Suggested Citation

  • Sumru Oz, 2014. "Diffusion of Technology and Convergence of Income among Countries," Koç University-TUSIAD Economic Research Forum Working Papers 1407, Koc University-TUSIAD Economic Research Forum.
  • Handle: RePEc:koc:wpaper:1407

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    References listed on IDEAS

    1. Dan Ben-David & Ayal Kimhi, 2001. "Trade and the rate of income convergence," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 13(4), pages 419-441.
    2. Martin Bijsterbosch & Marcin Kolasa, 2010. "FDI and productivity convergence in Central and Eastern Europe: an industry-level investigation," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(4), pages 689-712, January.
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    5. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
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    7. Changkyu Choi, 2004. "Foreign direct investment and income convergence," Applied Economics, Taylor & Francis Journals, vol. 36(10), pages 1045-1049.
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    9. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    10. Gomes Neto, Delfim & Veiga, Francisco José, 2013. "Financial globalization, convergence and growth: The role of foreign direct investment," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 161-186.
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    12. William Hauk & Romain Wacziarg, 2009. "A Monte Carlo study of growth regressions," Journal of Economic Growth, Springer, vol. 14(2), pages 103-147, June.
    13. Barrell, Ray & Pain, Nigel, 1999. "Domestic institutions, agglomerations and foreign direct investment in Europe," European Economic Review, Elsevier, vol. 43(4-6), pages 925-934, April.
    14. Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, vol. 42(1), pages 51-74, October.
    15. Xu, Bin, 2000. "Multinational enterprises, technology diffusion, and host country productivity growth," Journal of Development Economics, Elsevier, vol. 62(2), pages 477-493, August.
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    More about this item


    Economic Growth; FDI; Economic Integration; Technology Diffusion; Income Convergence.;

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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