North–South Trade-Related Technology Diffusion and the East Asia–Latin America Productivity Gap

Abstract This paper examines the impact of trade-related technology diffusion from G7 countries to Latin America and East Asia on total factor productivity controlling for education, governance, and distance. We build on the trade and distance-focused strands of the technology diffusion literature and find that (i) total factor productivity (TFP) increases with education, trade, and governance (ETG) and declines with distance to the G7 countries; (ii) increasing Latin America's ETG to East Asia's level would double TFP, accounting for about 75% of the TFP gap between the two country groups; and (iii) South America's greater remoteness relative to Mexico's from the US and Canada significantly reduces its TFP and similarly for Singapore's greater remoteness from Japan relative to Hong Kong.