Why trade when you can transfer the technology: Revisiting Smith and Ricardo

Abstract

Abstract This paper explores the possibility of international technology transfer in lieu of trade in a model with absolute and comparative advantage. Countries having absolute advantage in producing a good may offer that technology to a potential trading partner against a fee and both the countries might gain depending on the extent of comparative and absolute advantages. Thus, gains from trade might be dominated by gains from technology transfer, and we provide a formal proof and conditions for this possibility. Such an avenue of fruitful exchange remains unexplored in the Ricardian model of trade. Our result extends to the many commodity case.