Trade and the Transmission of Technology

This paper studies the role of trade, both domestically as well as internationally, as a channel of technology transmission. A model is presented in which R&D investments towards product innovations trigger total factor productivity growth at the industry level. If the new products are exported to other industries, the return to the R&D investments does in part spill over to these industries. The model predicts that total factor productivity levels are positively related to both own-, and the domestic and foreign industry R&D investments of the trade partners. Using data on trade relations between OECD country sectors, effective R&D stocks are constructed which should pick up technology flows that are trade-related. The empirical results, which are comparative to a benchmark model where trade relations play no role, find generally only weak support for the notion that the transmission of technology is trade-related; more specifically, they point more towards domestic than to international trade. At the same time, the results suggest that the adopted approach might not be powerful enough to identify trade-related technology flows, which has implications for other areas of research which have used analogous approaches before.