Technology Transfer and National Efficiency in Developing Countries: The Role of International Trade

Productivity differences are viewed as an important explanation of cross-country percapita income differences. The recent literature has put forward two principal explanations for differences in productivity, technology transfer and absorptive capacity. This paper finds evidence that both are important for explaining productivity differences in developing countries and that international trade makes a contribution to both. Developing countries benefit from the R&D investments of developed countries by importing capital goods in which this technology is embedded, while openness to international trade, through greater competitive pressures, also reduces inefficiency. The authors wish to thank Jörg Mayer from UNCTAD for making the trade data, extracted from COMTRADE, available to us.