Globalization, Divergence and Stagnation

literature on trade and technology and the absence of factor price equalization makes
it suitable for analyzing the world income distribution. Several observations suggest
that technical progress has a strong sectoral dimension. For example, R&D is mainly
performed by large companies and therefore directed to their range of activities.
Although innovation certainly generates spillovers, Jaffe et al. (1993) show that these
are generally limited to products in similar technological categories.⁸ Infringements
of IPRs in developing countries is indeed a significant phenomenon, as proven by the
many complaints of large companies based in industrial countries. In this respect, the
US Chamber of Commerce estimated a profit loss for US firms of about $24 billion
in 1988. Finally, gross substitutability between goods seem realistic, as it yields the
sensible prediction that fast growing sectors and countries become relatively richer.

The paper is related to the vast literature on endogenous growth and trade. The
model with the closest setup to the present is perhaps the one suggested by Tay-
lor (1994), who studies growth, IPRs and trade in a Ricardian model with sector-
specific innovation. However, the assumption of a unit elasticity of substitution
between goods prevents him from investigating distributional issues related to sec-
toral growth. Acemoglu and Ventura (2002) study how trade generates a stable
world income distribution, but they do not analyze IPRs, innovation and imitation.
Acemoglu and Zilibotti (2001) focus on factor-specific technical progress in a model
where developing countries do not protect IPRs and show how this leads to the
development of technologies not appropriate for the skill-endowment of the South.
Despite the similar setup, in their model trade has quite different implications, as
it generates productivity convergence and leaves the world growth rate unaffected.⁹
The main reason for these contrasting resuts is that Acemoglu and Zilibotti use a
Heckscher-Ohlin trade model, featuring factor price equalization. Closer to the spirit
of the earlier endogenous growth approach, Young (1991) builds a model of learning
by doing where trade can slow down the growth rate of a country that specializes
in a sector with weak dynamic scale economies. The result of this paper is more
general, as it shows that trade induces innovation diversion in favor of rich coun-
tries irrespective of the sector of specialization, because what matters for attracting

⁸Cross-Sectoral spillovers can be included in the model without affecting the qualitative results
as long as spillovers are less beneficial than a directed innovation.

⁹Acemolgu and Zilibotti (2001) claim, without proving it, that trade, by inducing skill-biased
technical change, increases the North-South income gap. It turns out that this result holds only
under special circumstances. What is general, in their model, is that the endogenous response of
technology makes trade less beneficial for poor countries than would othewise be.

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