Trade in disembodied technology and total factor productivity in OECD countries

Abstract

This paper searches for evidence of the importance of international trade in disembodied technology as a specific diffusion mechanism, using a sample of 16 OECD countries from 1971 to 1995. Consistent with previous research, this paper finds that there is international diffusion of technology. The measure for international trade in technology is OECD's Technology Balance of Payments statistics, which are country-level data on international transactions of disembodied technology. The econometric analysis explicitly takes into account non-stationarity of the variables, and for this reason, dynamic ordinary least squares (DOLS) is the estimation method used in the present study. The analysis shows that the effect of trade in disembodied technology on the importer's productivity varies across countries. Specifically, within OECD countries not in the G7 group, technology imports increase the host-country's total factor productivity, with the effect being stronger in the initial years of the sampling period. There is no evidence on this positive effect of technology trade on productivity in the case of G7 countries.