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North-South technology diffusion, regional integration, and the dynamics of the natural trading partners hypothesis

  • Schiff, Maurice
  • Wang, Yanling

Based on static analysis, a number of studies argue that forming a regional trade agreement is more likely to raise welfare if member countries are"natural trading partners,"while other studies claim that the opposite is true. Schiff and Wang look at the argument from a dynamic viewpoint by examining the impact of North-South trade on technology diffusion and total factor productivity (TFP) in the South. Specifically, it examines the impact on TFP in the Republic of Korea, Mexico, and Poland of trade with Japan, Canada plus the United States (North America) and the European Union. Using industry-level data, they find that (1) technology diffusion and productivity gains tend to be regional: Korea benefits mainly from trade with Japan, Mexico with the United States, and Poland with the European Union; and (2) though these results suggest that the dynamic version of the"natural trading partners"hypothesis holds for all three countries, careful analysis shows that it holds for Korea and Mexico but not necessarily for Poland.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3434.

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Date of creation: 01 Oct 2004
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Handle: RePEc:wbk:wbrwps:3434
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  1. David T. Coe & Elhanan Helpman, 1993. "International R&D Spillovers," NBER Working Papers 4444, National Bureau of Economic Research, Inc.
  2. Schiff, Maurice & Wang, Yanling & Olarreaga, Marcelo, 2002. "Trade-related technology diffusion and the dynamics of North-South and South-South integration," Policy Research Working Paper Series 2861, The World Bank.
  3. Schiff, Maurice, 1999. "Will the real"natural trading partner"please stand up?," Policy Research Working Paper Series 2161, The World Bank.
  4. Wolfgang Keller, 1997. "Are International R&D Spillovers Trade-Related? Analyzing Spillovers Among Randomly Matched Trade Partners," NBER Working Papers 6065, National Bureau of Economic Research, Inc.
  5. Michaely, Michael, 1998. "Partners to a preferential trade agreement: Implications of varying size," Journal of International Economics, Elsevier, vol. 46(1), pages 73-85, October.
  6. Eaton, Jonathan & Kortum, Samuel, 1999. "International Technology Diffusion: Theory and Measurement," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 537-70, August.
  7. Elhanan Helpman & David T. Coe, 1993. "International RandD Spillovers," IMF Working Papers 93/84, International Monetary Fund.
  8. Pravin Krishna, 2003. "Are Regional Trading Partners "Natural"?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 202-231, February.
  9. Panagariya, A., 1997. "Preferential trading and the myth of natural trading partners," Japan and the World Economy, Elsevier, vol. 9(4), pages 471-489, December.
  10. Lichtenberg, Frank R. & Pottelsberghe de la Potterie, Bruno v., 1998. "International R&D spillovers: A comment," European Economic Review, Elsevier, vol. 42(8), pages 1483-1491, September.
  11. Lumenga-Neso, Olivier & Olarreaga, Marcelo & Schiff, Maurice, 2005. "On `indirect' trade-related R&D spillovers," European Economic Review, Elsevier, vol. 49(7), pages 1785-1798, October.
  12. David T. Coe & Alexander W. Hoffmaister, 1999. "Are there International RandD Spillovers Among Randomly Matched Trade Partners? A Response to Keller," IMF Working Papers 99/18, International Monetary Fund.
  13. Lawrence H. Summers, 1991. "Regionalism and the world trading system," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 295-301.
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