Human Capital, International Trade and Technology Diffusion

This paper investigates the role played by trade openness in the process of international technology diffusion. Starting from the model provided by Benhabib and Spiegel (2005), here we show that the impact of trade openness on productivity growth is nonlinear. In particular, we will see how for low levels of trade openness a trade liberalization policy will reduce the rate of technology growth. On the other hand, we will see that the same policy will increase the rate of technology growth in more open economies. Therefore, our conclusion is that the lack of evidence in favour of a strong link between trade and productivity growth is due to the use of linear methods instead of nonlinear regression techniques.