Download this Paper Open PDF in Browser

International Trade, Technology Diffusion, and the Role of Diffusion Barriers

47 Pages Posted: 12 Jun 2012 Last revised: 9 Feb 2014

Yao Amber Li

Hong Kong University of Science and Technology - School of Business and Management, Department of Economics; HKUST IEMS (Institute for Emerging Market Studies)

Date Written: January 1, 2014

Abstract

This paper assesses the welfare impact of trade and technology diffusion as well as the change in the cross-country distribution of GDP due to removal of trade costs and diffusion barriers. The model extends the multi-country Ricardian trade model of Alvarez and Lucas (2007) to include technology diffusion with diffusion barriers. A key feature of the model is that some countries export goods produced by foreign technology via diffusion. The model is calibrated to match the world GDP distribution, the merchandise trade and technology diffusion shares of GDP, and real GDP per capita for a sample of 31 countries. Data on international trade in royalties, license fees, and information intensive services are used as proxies for international technology diffusion. There are three key findings. First, the welfare gains from removing diffusion barriers are 4-60% across countries, generally larger than the gains from removing trade costs (8-40%). The main reason is that diffusion has a larger impact on the nontradable sector due to the substitutability between trade and diffusion in the tradable sector. Another reason is that diffusion barriers are generally larger than trade costs. Second, removing trade costs and diffusion barriers has little impact on reducing the dispersion of real GDP per capita (measured by Gini index) across countries. Compared to the benchmark, free diffusion decreases the Gini by 4%, and free trade decreases the Gini by 2%. Third, removing diffusion barriers increases trade, which indicates that diffusion may enhance trade.

Keywords: international trade, technology diffusion, welfare gains, diffusion barriers, income distribution

JEL Classification: F15, F17, O11, O33, O40

Suggested Citation

Li, Yao Amber, International Trade, Technology Diffusion, and the Role of Diffusion Barriers (January 1, 2014). Available at SSRN: https://ssrn.com/abstract=1978304 or http://dx.doi.org/10.2139/ssrn.1978304

Yao Amber Li (Contact Author)

Hong Kong University of Science and Technology - School of Business and Management, Department of Economics; HKUST IEMS (Institute for Emerging Market Studies) ( email )

Econ Dept, HKUST,
Clear Water Bay
Hong Kong
China

HOME PAGE: http://ihome.ust.hk/~yaoli/

Paper statistics

Downloads
129
Rank
186,042
Abstract Views
761