When Vintage Technology Makes Sense: Matching Imports to Skills

No AccessPolicy Research Working Papers25 Jun 2013When Vintage Technology Makes Sense: Matching Imports to SkillsAuthors/Editors: Isidro Soloaga, Barba Giorgio Navaretti, Wendy TakacsIsidro Soloaga, Barba Giorgio Navaretti, Wendy Takacshttps://doi.org/10.1596/1813-9450-1923SectionsAboutPDF (0.1 MB) ToolsAdd to favoritesDownload CitationsTrack Citations ShareFacebookTwitterLinked In Abstract:May 1998 Trade policy in developing countries often discriminates against imports of secondhand goods. Used machines may make sense when there is complementarity between skills and production technologies and the skill base of the importing country is poor. Trade policies in many developing countries discriminate-through import bans, licensing requirements, or higher tariff rates. Even Australia adds a $12,000 tariff on used cars. Such discrimination is often motivated by the desire to protect domestic industries from competition from low-priced goods, to avoid becoming a dumping ground for castoffs from high-income countries, or to push domestic industries toward the technological frontier. But trade restrictions on used capital goods may be inappropriate in countries where low wages and high interest rates call for labor-intensive production processes. Older equipment is likely to be more labor-intensive than new equipment, because technological changes tend to be labor-saving and older equipment requires greater maintenance and presents greater risk of machine downtime. In this empirical analysis of international trade in production machinery, Barba Navaretti, Soloaga, and Takacs examine choices between new and used equipment, when there is labor-saving technical progress and the skills and technology available in a firm complement each other. They examine U.S. exports of metalworking machine tools by country of destination, classifying machines by vintage technological characteristics. They do so by developing a new method for classifying trade data on machines according to the minimum technological skills necessary to operate them. They are consequently able to use trade data to measure technology transfer. The main findings: ° The lower a country's level of development-as measured by such indicators as per capita income, wages, and average education-the greater the share of used equipment imported by the country. ° Imports of used machinery are greater, the faster the technical change and the greater the skills required to run the machinery efficiently. They conclude that technological factors and skill constraints may be far more important than wage and interest-rate differentials in determining a firm's choice of technique in developing countries. Consequently the technological gap between advanced and developing economies rises when machines embody faster technological progress. Barba Navaretti, Soloaga, and Takacs argue against constraints on imports of used equipment, not for the reason often given in existing literature-inappropriate capital-labor ratios in low-wage countries-but because investing in advanced technologies makes sense only if the countries importing them have the skill to use them. This paper-a product of the Development Research Group-is part of a larger effort in the group to assess the role of trade barriers on technology diffusion. The authors may be contacted at [email protected], [email protected], and [email protected] Previous bookNext book FiguresreferencesRecommendeddetailsCited byThe Embodiment Controversy: On the Policy Implications of Vintage Capital ModelsJournal of Money, Credit and Banking, Vol.54, No.517 January 2022Circuits of scrap: closed loop industrial ecosystems and the geography of US international recyclable material flows 1995-2005Geographical Journal, Vol.175, No.418 September 2009 View Published: November 1999 Copyright & Permissions Related RegionsSouth AsiaRelated TopicsFinance and Financial Sector DevelopmentIndustryInformation and Communication TechnologiesMacroeconomics and Economic GrowthPrivate Sector DevelopmentSocial Protections and Labor KeywordsCAPITALCAPITAL MARKETSCHOICEDEMANDDEVELOPMENTDUMPINGEXPORTSGOODSHUMAN CAPITALINCOMEINFLUENCEINTERESTINTEREST RATESINTERNATIONAL TRADEPRODUCTIVITYTRADE POLICIESTRADE POLICYWAGE RATESWAGESWELFARE PDF downloadLoading ...