Trade Liberalization, Firm Performance and Labour Market Outcomes in the Developing World: What Can We Learn from Micro-LevelData?

4.1 The import channel of technology diffusion¹¹

In the absence of plant-level studies on the link between imports and productivity growth, here we
briefly discuss the evidence based on more aggregated data. Coe and Helpman (1995) is one of the
first attempts to perform a rigorous test of the relevance of imports as a vehicle for the international
transmission of technology. Using a sample of OECD countries, these authors ask how much of
a country’s total factor productivity can be explained by domestic and foreign R&D activities,
where the latter is crucially defined as the import share-weighted average of partner countries’
R&D activities. Coe and Helpman find that both domestic and foreign R&D have a positive and
significant effect on domestic TFP. Further, for small countries (only), the TFP elasticity to foreign
R&D is significantly larger than that to domestic R&D. Similarly, using patent data, Eaton and
Kortum (1996) find that innovations that originate abroad explain more than 90% of productivity
growth of small OECD countries, and that more than half of these innovations originate from only
three countries, i.e., the U.S., Japan and Germany.

Coe, Helpman and Hoffmaister (1997) extend their analysis to a large sample of developing
countries. One important difference is that import shares are computed by considering imports
of machinery and equipment only, since these goods are more likely to embody new knowledge.
Their results strongly suggest that intermediate goods imports raise total factor productivity also
in developing countries. Meyer (2001) restricts even further the definition of imports used to
compute import shares by considering machinery only and finds that in this case the TFP elasticity
to foreign R&D in developing countries is twice as large as in the case in which all imports are
used to compute foreign R&D.

A recent paper by Barba Navaretti and Soloaga (2002) looks at the role of imported machines in
transferring embodied technological progress. They use data on unit values of machines exported by
the EU to a sample of neighboring developing and transition countries in Central-Eastern Europe
and in the Southern Mediterranean. Here, unit values proxy for the technological complexity

¹¹See also Barba Navaretti and Tarr (2000) and Keller (2001a) for two recent surveys of interna-
tional trade and technology diffusion.

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