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International Trade, Technology Diffusion, and the Role of Diffusion Barriers

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  • Li, Yao Amber

Abstract

This paper assesses the welfare impact of trade and technology diffusion as well as the change in the cross-country distribution of GDP due to removal of trade costs and diffusion barriers. The model extends the multi-country Ricardian trade model of Alvarez and Lucas (2007) to include technology diffusion with diffusion barriers. A key feature of the model is that some countries export goods produced by foreign technology via diffusion. The model is calibrated to match the world GDP distribution, the merchandise trade and technology diffusion shares of GDP, and real GDP per capita for a sample of 31 countries. Data on international trade in royalties, license fees, and information intensive services are used as proxies for international technology diffusion. There are three key findings. First, the welfare gains from removing diffusion barriers are 4--60% across countries, generally larger than the gains from removing trade costs (8--40%). The main reason is that diffusion has a larger impact on the nontradable sector due to the substitutability between trade and diffusion in the tradable sector. Another reason is that diffusion barriers are generally larger than trade costs. Second, removing trade costs and diffusion barriers has little impact on reducing the dispersion of real GDP per capita (measured by Gini index) across countries. Compared to the benchmark, free diffusion decreases the Gini by 4%, and free trade decreases the Gini by 2%. Third, removing diffusion barriers increases trade, which indicates that diffusion may enhance trade.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39409.

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Date of creation: 01 Jan 2010
Date of revision: 01 Dec 2011
Handle: RePEc:pra:mprapa:39409

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Related research

Keywords: trade; technology diffusion; diffusion barriers; trade costs; welfare gains; GDP distribution; knowledge trade;

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References

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  1. Irarrazabal, Alfonso & Moxnes, Andreas & Opromolla, Luca David, 2009. "The Margins of Multinational Production and the Role of Intra-firm trade," CEPR Discussion Papers 7145, C.E.P.R. Discussion Papers.
  2. Jonathan Eaton & Samuel Kortum, 1995. "Trade in Ideas: Patenting and Productivity in the OECD," NBER Working Papers 5049, National Bureau of Economic Research, Inc.
  3. Bridgman, Benjamin R. & Livshits, Igor D. & MacGee, James C., 2007. "Vested interests and technology adoption," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 649-666, April.
  4. Natalia Ramondo & Andrés Rodríguez-Clare, 2010. "Growth, Size, and Openness: A Quantitative Approach," American Economic Review, American Economic Association, vol. 100(2), pages 62-67, May.
  5. Andres Rodriguez-Clare & Natalia Ramondo, 2007. "Trade, Multinational Production, and the Gains from Openness," 2007 Meeting Papers 819, Society for Economic Dynamics.
  6. Giovanni Peri, 2005. "Determinants of Knowledge Flows and Their Effect on Innovation," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 308-322, May.
  7. Fernando Alvarez & Robert E. Lucas, 2005. "General Equilibrium Analysis of the Eaton-Kortum Model of International Trade," NBER Working Papers 11764, National Bureau of Economic Research, Inc.
  8. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 123(2), pages 441-487, 05.
  9. Diego Comin & Bart Hobijn & Emilie Rovito, 2006. "Five Facts You Need to Know About Technology Diffusion," NBER Working Papers 11928, National Bureau of Economic Research, Inc.
  10. Jonathan Eaton & Samuel Kortum, 2006. "Innovation, Diffusion, and Trade," NBER Working Papers 12385, National Bureau of Economic Research, Inc.
  11. Breinlich, Holger & Criscuolo, Chiara, 2010. "International Trade in Services: A Portrait of Importers and Exporters," CEPR Discussion Papers 7837, C.E.P.R. Discussion Papers.
  12. Thomas Chaney, 2009. "Technological Mismatch: a Model of Internatioal Trade in Goods and Ideas," 2009 Meeting Papers, Society for Economic Dynamics 36, Society for Economic Dynamics.
  13. Keller, Wolfgang & Yeaple, Stephen R, 2009. "Gravity in the Weightless Economy," CEPR Discussion Papers 7553, C.E.P.R. Discussion Papers.
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