Convergence and polarization in global income levels: a review of recent results on the role of international technology diffusion

We review the recent literature on technological change and diffusion to shed new light on the evolution of the world’s cross-country income distribution. Technology is viewed as non-rival knowledge in the sense that firms in more than one country can simultaneously use it. R&D investments generate often also a return outside the innovating firm itself; these knowledge externalities are called technology spillovers. We emphasize that technology is to some extent tacit, and technology diffusion often involves the face-to-face interaction of people. Our paper reviews the evidence on whether international trade, foreign direct investment, and other cross-border activities are important for technology diffusion. © 2002 Elsevier Science B.V. All rights reserved.