Is trade openness a carrier of knowledge spillovers for developed and developing countries?

Abstract

The present study examines a database of 58 countries for a period of 45 years to assess whether trade openness can operate as a technology transfer channel. The examination has a twofold purpose: determining the impact of openness on total factor productivity and verifying whether this relationship holds for low-income and emerging countries. Employing the generalized method of moments for a data-panel model (System GMM), the analysis focuses on domestic and foreign knowledge capital stocks and level and variation of openness, among other variables. The results indicate that the level of trade openness does not affect productivity growth, though its variation rate has temporary positive effects on total factor productivity. However, for high- and middle-income countries, the openness level affects productivity positively. In the case of low-income and emerging countries, however, openness affects productivity growth negatively even when the degree of openness interacts with domestic knowledge stock.