Technology Gaps, Trade and Income

72 Pages Posted: 21 Jul 2019 Last revised: 23 Jul 2019

See all articles by Thomas Sampson

Thomas Sampson

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

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Date Written: 2019

Abstract

This paper studies the origins and consequences of international technology gaps. I develop an endogenous growth model where R&D efficiency varies across countries and productivity differences emerge from firm-level technology investments. The theory characterizes how innovation and learning determine technology gaps, trade and global income inequality. Countries with higher R&D efficiency are richer and have comparative advantage in more innovation-dependent industries where the advantage of backwardness is lower and knowledge spillovers are more localized. I estimate R&D efficiency by country and innovation-dependence by industry from R&D and bilateral trade data. Calibrating the model implies technology gaps, due to cross-country differences in R&D efficiency, account for around one-quarter to one-third of nominal wage variation within the OECD.

Keywords: technology gaps, trade, technology investment, Ricardian comparative advantage, international wage inequality

JEL Classification: F110, F430, O140, O410

Suggested Citation

Sampson, Thomas, Technology Gaps, Trade and Income (2019). CESifo Working Paper No. 7714, Available at SSRN: https://ssrn.com/abstract=3420583

Thomas Sampson (Contact Author)

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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