Decomposition of Information and Communication Technology for Development: A Case for Investment in and Trade of Intellectual Property

Abstract

This paper examines developing countries’ ability to increase output capacity in order to become competitive in international trade while fostering market diversification by investing in a portfolio of industries instead of specializing in one industry. Measuring the impact that information and communication technology (ICT) has on competitiveness in the export market, I examine the applied research question: does investment in ICT infrastructure stimulate export trade in intellectual property, specifically, in the area of copyright related goods and services? The motivation for this research is twofold: 1) the growing digital divide between developed and developing countries needs to be addressed for development and prosperity; and 2) the growing number of industries impacted by ICT (as measured by the number of industries that have sales related to ICT) meets the goal of diversifying developing economies. If I find that returns to ICT are the same in both developed and developing countries and the gap in ICT related trade is due to endowments of ICT, this supports the Heckscher-Olin model’s theoretical predictions on patterns of trade. However, if I find that returns to ICT are different between developed and developing countries and that the ICT related gap in trade is not due to endowments of ICT, this supports the Ricardian model’s theoretical predictions on patterns of trade. Most likely the analysis will find evidence that supports a combination of these two trade models. That being the case I would need a theory that can weigh the relative effects of endowments against returns to technology. I utilize the Blinder (1973) and Oaxaca (1973) decomposition methodology to disentangle the combined effects of endowments and technology on development and patterns of trade.