How trade patterns and technology flows affect productivity growth

Earlier studies of spillovers from international research and development (R&D) suggest how economies benefit from R&D conducted abroad. To the extent that countries importing new technologies do not pay in full for the increased variety in intermediate inputs in production, they are reaping an external, or spillover, effect. The author analyzes a particular mechanism through which economies benefit from foreign R&D. The author estimates the extent to which a country benefits from imports of intermediategoods that embody new technology -- the result of foreign investments in R&D. He distinguishes this mechanism from others unrelated to international trade. Using industry-level data for eight OECD countries (Sweden and the G-7 countries) between 1970 and 1991, he estimates the underlying model of trade and growth. This empirical analysis leads to several findings about spillovers from international R&D. First, the productivity effects of foreign R&D vary substantially, depending on which country is conducting the R&D. The quality of newly created technology varies. Second, as a factor influencing productivity, a country's own R&D is more important than that of the average foreign country. It is difficult to separate the effect of importing intermediate goods with embodied technology from a more general spillover effect; often both are present. Third, in the author's sample of industrial countries, international trade contributes about 20 percent of the total effect on productivity from foreign R&D investments. The author conjectures that this effect could be higher for less industrialized countries importing from OECD countries, but stresses that alternative mechanisms (such as foreign direct investment) should be included when estimating the effects of international trade in the international diffusion of technology.Payment Systems&Infrastructure,Environmental Economics&Policies,Economic Theory&Research,Scientific Research&Science Parks,Agricultural Knowledge&Information Systems,Economic Theory&Research,Science Education,Scientific Research&Science Parks,Research and Development,Environmental Economics&Policies

International Business Travel: An Engine of Innovation?

While it is well known that managers prefer in-person meetings for negotiating deals and selling their products, face-to-face communication may be particularly important for the transfer of technology because technology is best explained and demonstrated in person. This paper studies the role of short-term cross-border labor movements for innovation by estimating the recent impact of U.S. business travel to foreign countries on their patenting rates. Business travel is shown to have a signi…cant e¤ect up and beyond technology transfer through the channels of international trade and foreign direct investment. On average, a 10% increase in business travel leads to an increase in patenting by about 0.2%, and inward business travel is about one fourth as potent for innovation as domestic R&D spending. We show that the technological knowledge of each business traveler matters by estimating a higher impact for travelers that originate in U.S. states with substantial innovation, such as California. This study provides initial evidence that international air travel may be an important channel through which cross-country income di¤erences can be reduced.

Multinational enterprises international trade, and productivity growth: Firm-level evidence from the United States

We estimate international technology spillovers to U.S. manufacturing firms via imports and foreign direct investment (FDI) between the years of 1987 and 1996. In contrast to earlier work, our results suggest that FDI leads to substantial productivity gains for domestic firms. The size of FDI spillovers is economically important, accounting for about 11% of productivity growth in U.S. firms between 1987 and 1996. In addition, there is some evidence for imports-related spillovers, but it is weaker than for FDI. The paper also gives a detailed account of why our study leads to results different from those found in previous work. This analysis indicates that our results are likely to generalize to other countries and periods. --

Global Production and Trade in the Knowledge Economy

This paper presents and tests a new model of multinational firms to explain a rich array of multinational behaviour. In contrast to most approaches, here the multinational faces costs to transferring its know-how that are increasing in technological complexity. Costly technology transfer gives rise to increasing marginal costs of serving foreign markets, which explains why multinational firms are often much more successful in their home market compared to foreign markets. The model has four key predictions. First, as transport costs between multinational parent and affiliate increase, firms with complex production technologies find it relatively difficult to substitute local production for imports from the parent, because complex technologies are relatively costly to transfer. Second, the activity of affiliates with complex technologies declines relatively strongly as transport costs from the home market increase, both at the intensive and the extensive margin. We also show that as transport costs from the home market increase, affiliates concentrate their imports from the parent on intermediates that are technologically more complex. We test these hypotheses by employing information on the activities of individual multinational firms, on the nature of intra-firm trade at the product level, and on the skills required for occupations with different complexity. The empirical analysis finds strong evidence in support of the model by confirming all four hypotheses. The analysis shows that accounting for costly technology transfer within multinational firms is important for explaining the structure of trade and multinational production.

Market Integration and Economic Development: A Long-run Comparison

How much of China's recent economic performance can be attributed to market-oriented reforms introduced in the last two decades? A long-run perspective may be important for understanding the process of economic development occurring today. This paper compares the integration of rice markets in China today and 270 years ago. In the 18th century, transport technology was non-mechanized, but markets were close to being free markets. We distinguish local harvest and weather from aggregate sources of price variation in a historical sample and in a similarly constructed contemporary sample. Findings indicate the degree of market integration in the 1720s is a very good predictor of per capita income in the 1990s. Moreover, the current pattern of interregional income in China is strongly linked to persistent geographic factors that were already apparent several centuries ago, well before the enactment of modern reform programs.

The Gravity of Knowledge

How large are spatial barriers to transferring knowledge? We analyze the international operations of multinational firms to answer this fundamental question. In our model firms can transfer bits of knowledge to their foreign affiliates in either embodied (traded intermediates) or disembodied form (direct communication). Knowledge transfer costs interact with the knowledge intensity of production to determine the geographic structure of multinationals' input sourcing as well as its competitiveness in foreign markets. The model shows how data on observable trade costs and features of multinationals' global operations reveal the size and nature of knowledge transfer costs. Our empirical analysis confirms the model's predictions using firm-level data, quantifies the aggregate implications of the model for the structure of multinationals' operations, and demonstrates that transfer costs shape the knowledge content of intra-firm trade flows.

Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States

We estimate international technology spillovers to U.S. manufacturing firms via imports and foreign direct investment (FDI) between the years of 1987 and 1996. In contrast to earlier work, our results suggest that FDI leads to significant productivity gains for domestic firms. The size of FDI spillovers is economically important, accounting for about 14% of productivity growth in U.S. firms between 1987 and 1996. In addition, there is some evidence for imports-related spillovers, but it is weaker than for FDI. The paper also gives a detailed account of why our study leads to results different from those found in previous work. This analysis indicates that our results are likely to generalize to other countries and periods.

Markets in China and Europe on the Eve of the Industrial Revolution

Prevailing views suggest the Industrial Revolution began in Europe because markets had gradually become more efficient and by the 18th century the scope of economic activity was far larger than in other parts of the world. This paper compares the actual performance of markets in Europe and China, two regions of the world that were relatively advanced in the pre-industrial period, but would start to industrialize about 150 years apart. The analysis covers economies that account for about two-fifths of the world's population in the mid-18th century, and it considers some three centuries of data. Our findings suggest that relative levels of market function in China and Europe were similar prior to the Industrial Revolution. Higher efficiency in Europe is seen only in the nineteenth century when industrialization was already underway. Moreover, these improvements occurred in a dramatic and sudden fashion, further casting doubt on an evolutionary view of market development. Rather than being a key condition for subsequent growth, gains in efficiency appeared simultaneously with the turning point of modern growth. We discuss the implications of these findings for a number of explanations for long-run growth and the Industrial Revolution.