The Dual Nature of Trade : Measuring its Impact on Imitation and Growth

Imports of goods that embody foreign technology raise a country's output directly, as inputs into production, and indirectly, through reverse-engineering of these goods which contributes to domestic imitation and innovation. This paper first quantifies spillovers from high technology imports from developed countries to domestic imitation and innovation in both developed and developing countries. It then considers the importance of foreign and domestic innovation to real per capita GDP growth. International patent data for 40 countries from 1970 to 1985 are used to create proxies for imitation and innovation. High technology imports, as well as quality adjusted research and the size of the economy, positively affect both domestic imitation and innovation. Transportation and communication infrastructure positively affects imitation, but does not appear to play a role in innovation. Interestingly, foreign direct investment inflows, often considered important mechanisms for technological diffusion to developing nations, do not significantly affect either domestic innovation or imitation. Finally, while both foreign and domestic innovation contribute positively to real per capita GDP growth, foreign technology from developed countries appears to play a far greater role in growth than domestic technology