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Do Capital Inflows Spur Technology Diffusion? Evidence from a New Technology Adoption Index

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  • Ms. Gabriela Cugat
  • Andrea Manera

Abstract

We construct a novel measure of technology adoption, the Embodied Technology Imports Indicator (ETI), available for 181 countries over the period 1970-2020. The ETI measures the technological intensity of imports of each country by leveraging patent data from PATSTAT and product-level trade data from COMTRADE. We use this index to assess the link between capital flows and the diffusion of new technologies across emerging economies and low-income countries. Through a local projection difference-in-differences approach, we establish that variations in statutory capital flow regulations increase technological intensity by 7-9 percentage points over 5 to 10 years. This increase is accompanied by a significant 28-33 pp rise in the volume of gross capital inflows, driven primarily by foreign direct investment (21 pp increase), and a 9 to 12 percentage points shift in the level of Real GDP per capita in PPP terms.

Suggested Citation

  • Ms. Gabriela Cugat & Andrea Manera, 2024. "Do Capital Inflows Spur Technology Diffusion? Evidence from a New Technology Adoption Index," IMF Working Papers 2024/044, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2024/044
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    Keywords

    Technology measurement; Technology diffusion; Capital flows; Capital account openness.; IMF working paper No. 2024/44; ETI indicator; liberalization episode; technology score; natural logarithm; standard deviation; Capital account liberalization; Imports; Capital account; Global;
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