Trade and Technical Progress

Abstract

Using annual data 1963-1989 for technical progress in GECD countries (as measured by Solow residuals constructed using GECD data made internationally comparable through the use of purchasing power parties), the paper first shows that there has been significant international convergence in the rates of technical progress, with the initially poorer countries having faster technical progress. Country effects are found to be more significant than year effects, so subsequent analysis of the effects of trade on the growth of technology are done using 27 annual cross-sections of 19 countries each, with cross-equation restrictions applied and tested. The results suggest that both the level data and rate of increase in trade intensity lead to more rapid technical progress, with some additional effect from country size. Finally, there appears to be no evidence that countries with higher investment rates have had faster rates of technical progress, once the capital-deepening effects of investment have been taken into account via the production function used to define the Solow residuals.