Trade and Technology Progress: An Analysis for Uruguay

We examine technology spillovers to Uruguayan manufacturing firms through imports, foreign direct investment (FDI) and learning by exporting, for the period 1997-2001. This work provides evidence of the dynamic gains from trade openness for a small developing country, analysing simultaneously the various possible channels of international technology diffusion at the firm level. We find evidence of positive effects on production of imported intermediates and backward linkages with foreign firms. On the other hand there is evidence of negative effects of multinational presence at the industry level, while results for exporting are mixed. Finally, the results would indicate that absorptive capacity matters to take advantage of increased openness and FDI, so policies aimed to improve absorptive capacity such as investing in R&D and improving the skills of workers through training are likely to play a role in facilitating knowledge spillovers.