Technology Diffusion and Trade : An Empirical Investigation

The theory of international trade and growth emphasizes trade as a major channel of productivity spillovers across countries. Using a sample of 51 counties over the period 1970-1990, we estimate a Cobb-Douglas production function including a trade-weighted logarithmic average of the output per worker of trade partners. This new term enters significantly, with a positive coefficient of the order of 0.06-0.08. The estimate is robust to a split of the sample countries by their level of development, insuring that the result does not come from a tendency of rich countries to trade more with rich countries, and of poor countries to trade more with poor countries. The relative contributions of the human and physical capital of trade partners to productivity spillovers and then estimated by replacing their output per worker by a Cobb-Douglas function of their physical and human capital and estimating is freely. There is some evidence that human capital plays a predominant role in generating productivity spillovers. Finally, we test the assumption that trade enters proportionally, we generalize our specification by introducing a nonlinear function of the degree of openness and estimate it by non-linear least squares. The exponent on the degree of openness appears to be significantly positive but less than one. Thus, trade matters but in a nonlinear way : there are diminishing returns to openness.