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The Evolution of the World's Technology Frontier, 1973–2002

by Ram Acharya and Wolfgang Keller.

While economists generally agree that technology differences must figure prominently in any successful account of the cross-country income variation, much less is known on where such technology differences come from. In this paper, they are explained in terms of domestic technical change and international technology diffusion. We are studying the recent importance of factor accumulation, research and development investments, and technological spillovers for cross-country output differences in the major industrialized countries. The empirical analysis encompasses 17 countries in four continents over three decades, at a level disaggregated enough to identify innovations in important high-tech sectors. Technology diffusion is related to trade, foreign direct investment, and other mechanisms. Results show that technology spillovers are crucial in accounting for cross-country output differences. Imports are shown to be a channel of technology diffusion, with important differences across industries and countries. Technology diffusion through inward foreign direct investment appears to be of major importance, and a more powerful conduit of technology diffusion than trade.

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