Measuring the diffusion of technologies through international trade

Technological advancements affect economic growth, income distribution and levels of unemployment.  However, quantifying the pace of technological diffusion is problematic.  In this paper, a new measure of technological progress is created by estimating the high skill content of imports using industry level, bilateral trade data. Intuitively, during periods of trade liberalization a higher skill content embodied within imports will lead to a faster change in the arrival rate of new technologies.  Trade accelerated since the 1980s and with that came a diffusion of new technologies.  By utilizing the industry level trade data in conjunction with the high skill factor content of each industry, I develop a measure of technological diffusion using a theoretically consistent gravity model that incorporates both importer and exporter fixed effects.

This measure is advantageous for several reasons.  First, it provides a consistent measure of over one hundred countries.  Second, it is consistent with previous research that finds new technologies are transferred to developing countries largely through trade.  Finally, the nature of the gravity model addresses potential endogeneity issues that often arise when considering growth, inequality, trade and technology.

I find this measure is correlated with other measures of technological progress such as computer usage, capital intensity and investment in research and development.  However, these measures are often limited in their availability in developing countries.  The measure produced in this paper addresses this issue by providing a new data set for a large set of both developed and developing countries.  Finally, I apply this measure of technological progress and find that it significantly increases inequality, consistent with theoretical expectations.