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North-South Technological Diffusion and Dynamic Gains from Trade

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  • Michelle P. Connolly
  • Diego Valderrama

Abstract

This paper studies the transitional dynamics in a quality ladder model of endogenous growth in which North-South trade leads to technological diffusion through reverse engineering of intermediate goods. The concept of learning-to-learn is incorporated into both imitative and innovative processes, which in turn drive domestic technological progress. International trade with imitation leads to feedback effects between Southern imitators and Northern innovators who compete for the world market. Consequently, both regions face transition paths dependent on their relative technologies. We solve the model numerically to illustrate the transition paths and welfare effects of Southern trade liberalization. While particular welfare results depend on parameter choices, we demonstrate that focusing solely on steady-state results can lead to incorrect welfare interpretations.

Suggested Citation

  • Michelle P. Connolly & Diego Valderrama, 2005. "North-South Technological Diffusion and Dynamic Gains from Trade," Working Paper Series 2004-24, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfwp:2004-24
    DOI: 10.24148/wp2004-24
    Note: PDF date: July 11, 2005.
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Josh Hall, 2009. "Within and Across Country Inequality in a Model of Trade and Endogenous Growth," DEGIT Conference Papers c014_045, DEGIT, Dynamics, Economic Growth, and International Trade.
    2. Marattin, Luigi & Marzo, Massimiliano & Zagaglia, Paolo, 2013. "Distortionary tax instruments and implementable monetary policy," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 219-243.
    3. Fabio Manca, 2011. "The "farthest" need the best. Human capital composition and development-specific economic growth," IREA Working Papers 201117, University of Barcelona, Research Institute of Applied Economics, revised Oct 2011.
    4. Azevedo, Mónica L. & Afonso, Óscar & Silva, Sandra T., 2014. "Endogenous growth and intellectual property rights: A north–south modeling proposal," Economic Modelling, Elsevier, vol. 38(C), pages 112-120.
    5. Cavallaro, Eleonora & Mulino, Marcella, 2008. "Technological diffusion and dynamic gains from trade," MPRA Paper 13793, University Library of Munich, Germany.
    6. Oscar Afonso & Rui Henrique Alves, 2009. "Endogenous growth and European fiscal rules," Applied Economics, Taylor & Francis Journals, vol. 41(7), pages 849-858.
    7. Joshua D Hall, 2017. "Educational Quality Matters for Development: A Model of Trade, Inequality, and Endogenous Growth," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(1), pages 128-154, January.
    8. Michelle Connolly & Diego Valderrama, 2005. "Implications of Intellectual Property Rights for Dynamic Gains from Trade," American Economic Review, American Economic Association, vol. 95(2), pages 318-322, May.
    9. Afonso, Oscar, 2012. "The impact of public goods and services and public R&D on the non-observed economy size, wages inequality and growth," Economic Modelling, Elsevier, vol. 29(5), pages 1996-2004.
    10. Mónica L. Azevedo & Óscar Afonso & Sandra T. Silva, 2017. "Endogenous Growth and Intellectual Property Rights: A North–South Modelling Proposal with Population Ageing," Australian Economic Papers, Wiley Blackwell, vol. 56(1), pages 72-94, March.
    11. Richard B. Freeman, 2006. "Does Globalization of the Scientific/Engineering Workforce Threaten US Economic Leadership?," NBER Chapters, in: Innovation Policy and the Economy, Volume 6, pages 123-158, National Bureau of Economic Research, Inc.
    12. Afonso, Oscar, 2008. "The impact of government intervention on wage inequality without scale effects," Economic Modelling, Elsevier, vol. 25(2), pages 351-362, March.
    13. Oscar Afonso & Sara Monteiro & Maria Thompson, 2011. "A growth model for the quadruple helix," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 13(5), pages 849-865, September.
    14. Bulent Unel, 2010. "Technology Diffusion through Trade with Heterogeneous Firms," Review of International Economics, Wiley Blackwell, vol. 18(3), pages 465-481, August.
    15. Eleonora Cavallaro & Marcella Mulino, 2007. "Vertical Innovation and Catching Up: Implications for Trade and Growth," Working Papers 75, Sapienza University of Rome, CIDEI.

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    More about this item

    Keywords

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    JEL classification:

    • F1 - International Economics - - Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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