More Trade, Less Diffusion: Technology Transfers and the Dynamic Effects of Import Liberalization

Long-run economic growth depends on the international diffusion of frontier technologies. Using Brazilian data, we identify a channel through which tariff cuts slow this diffusion: they weaken foreign firms' incentives to transfer technology to domestic producers. Exploiting variation in import tariffs across origin countries within narrowly defined industries, we find that tariff reductions lead to fewer technology transfers and fewer citations to foreign technology, with the largest declines occurring among firms located near previous technology recipients. To interpret these findings, we develop a growth model in which foreign firms choose between exporting goods and transferring technology, with learning from exports being less efficient than learning from transferred technologies, as informed by the empirical evidence. Trade liberalization shifts learning from transferred technologies to imported goods, raising welfare in the short run but slowing diffusion and productivity growth. An optimal subsidy to technology transfers substantially amplifies the welfare gains from trade liberalization.