Breaking Borders: The Impact of Learning on the Gains from Trade

Abstract

I study how two learning channels-knowledge diffusion and technology adoption-affect trade patterns, economic growth, and welfare globally. Leveraging comprehensive Chinese firm-level data, I document that firms acquire knowledge from sellers when importing and adopt foreign technologies when exporting. Building on these findings, I develop a novel dynamic general equilibrium model incorporating these learning channels. The model reveals that knowledge diffusion through international trade significantly boosts welfare growth across all economies from 2000 to 2007. However, foreign technology adoption can diminish welfare in knowledge-rich countries by eroding their technological advantages. The effects of learning on welfare can either amplify or mitigate the losses from increased trade barriers, depending on the nature of the trade policies implemented.

Keywords: Knowledge Diffusion, Technology Adoption, General Equilibrium, Trade Barriers

JEL Classification: F12, F43, O33, O41