Trade liberalization increases competitive pressures on domestic firms, and thus creates incentives for reducing costs of production through technological progress. Through this channel, backward countries get a chance to narrow their technological gap with more advanced countries. In this paper, the case of transition countries is analyzed. A simple model of oligopolistic firms’ strategic decision on R&D is developed to motivate the empirical analysis. The results suggest that some initial conditions such as size of the initial technological gap, and initial openness to international trade, as well as the stage of the market reforms, in particular, rate of liberalization and structure of domestic markets are important factors in narrowing the technology gap.
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Length: 34 pages Date of creation: 26 Jun 2003 Date of revision: Handle: RePEc:wdi:papers:2003-567
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Find related papers by JEL classification: F14 - International Economics - - Trade - - - Country and Industry Studies of Trade O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
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