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Title: Technology Gaps, Trade and Income

Author(s): Thomas Sampson

Publication Date: June 2019

Keyword(s): International wage inequality, Ricardian comparative advantage, Technology gaps, Technology investment and Trade

Programme Area(s): International Trade and Regional Economics and Macroeconomics and Growth

Abstract: This paper studies the origins and consequences of international technology gaps. I develop an endogenous growth model where R&D efficiency varies across countries and productivity differences emerge from firm-level technology investments. The theory characterizes how innovation and learning determine technology gaps, trade and global income inequality. Countries with higher R&D efficiency are richer and have comparative advantage in more innovation-dependent industries where the advantage of backwardness is lower and knowledge spillovers are more localized. I estimate R&D efficiency by country and innovation-dependence by industry from R&D and bilateral trade data. Calibrating the model implies technology gaps, due to cross-country differences in R&D efficiency, account for around one-quarter to one-third of nominal wage variation within the OECD.

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Bibliographic Reference

Sampson, T. 2019. 'Technology Gaps, Trade and Income'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13799