Technology Diffusion on the International Trade Network

Abstract

Technological innovations generate knowledge spillovers—non-innovators benefit through the adoption, imitation, and extension of new technologies. International trade facilitates technology diffusion by providing importing countries access to technical knowledge that they can potentially internalize. Previous studies of the effect of trade on technology diffusion typically only consider the impact of direct (bilateral) trade on indirect measures of technology (e.g., total factor productivity). We contend that the analysis of trade's impact on technology diffusion would be more accurately assessed by using direct measures of specific technologies (e.g., intensity levels) and by allowing for the influence of both the direct and indirect effects of trade in the analysis. The latter is accomplished by modeling the international trade system as a weighted network, which quantifies both direct and indirect trade linkages. Combining trade data with data on the adoption of specific technologies, we find that the network effects of trade play a significant role in technology diffusion. In most cases, countries that are better-connected on the trade network have higher technology intensities. Further support for the importance of trade is provided by the finding that for “outdated” technologies, better-connected countries have lower technology intensities because of their adoption of newer, substitute technologies.