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When vintage technology makes sense : matching imports to skills

Author

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  • Navaretti, Giorgio Barba
  • Soloaga, Isidro
  • Takacs, Wendy

Abstract

Trade policies in many developing countries discriminate--through import bans, licensing requirements, or higher tariff rates. Even Australia adds a $12,000 tariff on used cars. Such discrimination is often motivated by the desire to protect domestic industries from competition from low-priced goods, to avoid becoming a dumping ground for castoffs from high-income countries,or to push domestic industries toward the technological frontier. But trade restrictions on used capital goods may be inappropriate in countries where low wages and high interest rates call for labor-intensive production processes. Older equipment is likely to be more labor-intensive than new equipment because technological changes tend to be labor-saving and older equipment requires greater maintenance and presents greater risk of machine downtime. In this empirical analysis of international trade in production machinery, the authors examine choices between new and used equipment, when there is labor-saving technical progress and the skills and technology available in a firm complement each other. They examine US exports of metalworking machine tools by country of destination, classifying machines by vintage technological characteristics. They do so by developing a new method for classifying trade data on machines according to the minimum technological skills necessary to operate them. They are consequently able to use trade data to measure technology transfer. The main findings: 1) The lower a country's level of development--as measured by such indicators as per capita income, wages, and average education--the greater the share of used equipment imported by the country. 2) Imports of used machinery are greater, the faster the technical change and the greater the skills required to run the machinery efficiently. They conclude that technological factors and skill constraints may be far more important than wage and interest-rate differentials in determining a firm's choice of technique in developing countries. Consequently the technological gap between advanced and developing economies rises when machines embody faster technological progress. The authors argue against constraints on imports of used equipment, not for the reason often given in existing literature--inappropriate capital-labor ratios in low-wage countries--but because investing in advanced technologies makes sense only if the countries importing them have the skill to use them.

Suggested Citation

  • Navaretti, Giorgio Barba & Soloaga, Isidro & Takacs, Wendy, 1998. "When vintage technology makes sense : matching imports to skills," Policy Research Working Paper Series 1923, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1923
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    References listed on IDEAS

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    1. repec:ilo:ilowps:366690 is not listed on IDEAS
    2. Piva, Mariacristina., 2004. "The impact of technology transfer on employment and income distribution in developing countries : a survey of theoretical models and empirical studies," ILO Working Papers 993666903402676, International Labour Organization.
    3. Oyelaran-Oyeyinka, Banji, 2001. "Networks and Linkages in African Manufacturing Cluster: A Nigerian Case Study," UNU-INTECH Discussion Paper Series 2001-05, United Nations University - INTECH.
    4. Marco Vivarelli, 2014. "The Middle Income Trap: A Way Out Based on Technological and Structural Change," DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali dises1403, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    5. Marco Vivarelli, 2015. "Structural Change and Innovation in Developing Economies: A Way Out of the Middle Income Trap ?," LEM Papers Series 2015/09, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    6. Getinet Haile & Ilina Srour & Marco Vivarelli, 2017. "Imported technology and manufacturing employment in Ethiopia," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 7(1), pages 1-23, April.
    7. Haile, Getinet & Srour, Ilina & Vivarelli, Marco, 2017. "Globalization, Technological Change and Skills: Evidence from Ethiopia," GLO Discussion Paper Series 16, Global Labor Organization (GLO).
    8. Vivarelli, Marco, 2018. "Globalisation, structural change and innovation in emerging economies: The impact on employment and skills," MERIT Working Papers 2018-037, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    9. Roberto M. Samaniego & Juliana Yu Sun, 2022. "The Embodiment Controversy: On the Policy Implications of Vintage Capital Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(5), pages 1175-1222, August.
    10. Emiko Fukase & L. Alan Winters, 2003. "Possible Dynamic Effects of AFTA for the New Member Countries," The World Economy, Wiley Blackwell, vol. 26(6), pages 853-871, June.
    11. Haile, Getinet Astatike & Srour, Ilina & Vivarelli, Marco, 2013. "The Impact of Globalization and Technology Transfer on Manufacturing Employment and Skills in Ethiopia," IZA Discussion Papers 7820, Institute of Labor Economics (IZA).
    12. Vivarelli, Marco, 2012. "Innovation, Employment and Skills in Advanced and Developing Countries: A Survey of the Literature," IZA Discussion Papers 6291, Institute of Labor Economics (IZA).
    13. Vivarelli, Marco, 2014. "Structural Change and Innovation as Exit Strategies from the Middle Income Trap," IZA Discussion Papers 8148, Institute of Labor Economics (IZA).
    14. Blanca MARTINEZ, 2002. "Adoption Costs, Age of Capital and Technological Substitution," LIDAM Discussion Papers IRES 2002024, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    15. Getinet Haile & Ilina Srour & Marco Vivarelli, 2014. "Globalization and Technology Transfer in Ethiopia: Their Impact on Domestic Employment and Skills," DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali dises1498, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    16. Sami Atallah & Ilina Srour, 2014. "The Emergence of Highly Sophisticated Lebanese Exports in the Absence of an Industrial Policy," Working Papers 876, Economic Research Forum, revised Nov 2014.

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