Trade Patterns, Technology Flows, and Productivity Growth: Any Relationship?

In this paper, I examine the relation of trade patterns, technology flows, and productivity growth; in particular, the hypothesis that foreign R&D investments which are transmitted through trade in intermediate inputs lead to domestic productivity gains. I derive several estimation equations where productivity growth is related to the growth of cumulative R&D stocks of a country's trade partners. The empirical analysis investigates this relation by simulating (Monte Carlo-style) counter factual trade patterns, and comparing the relation based on ''true'' trade patterns with the one obtained from simulated trade patterns. Among the findings: (1) I confirm earlier results showing that domestic productivity growth is positively affected by foreign countries R&D efforts. (2) There is strong evidence suggesting that the effects of trade-weighted foreign R&D vary significantly by partner country. (3) I present results which suggest that the observed trade patterns-cum-partner countries R&D investments have the predicted productivity effects. I show subsequently that this result needs to be qualified: the productivity effects do not rely on the partner countries' R&D investments and the import shares. Rather, differences in countries' R&D investments are insignificant in their effect on domestic productivity once the world's actual trade patterns are imposed.