International Knowledge Flows and Economic Performance: A Review of the Evidence

An empirical analysis of the microeconomic links between tradeand knowledge diffusion is useful for singling out some of thekey predictions of the theory of endogenous growth in open economies.This literature postulates that total factor productivity ishigher when trade gives countries access to a wider or moresophisticated range of technologies. The articles reviewed herefind considerable evidence that imported technologies raisetotal factor productivity in importing countries, particularlydeveloping countries and particularly when technologies areacquired by way of imports of intermediate goods. They alsoprovide some support for the argument that exports and foreigndirect investment are channels for learning. Although accessto foreign technologies has a positive impact on developingcountries' total factor productivity, overall these countriesare shown to purchase older and simpler machines than industrialcountries. Relative factor and machinery costs and skill andtechnology endowments affect the choice of imported technologies.However, government attempts to limit or guide the selectionof technologies are likely to have a negative effect on growthbecause they discourage producers from purchasing the most appropriateand efficient machines. Rather, policies aimed at promotingtechnological development should strengthen the absorptive capacityof importing countries and address the complementarity betweenhuman and physical capital in a broader context.