Technology Gaps, Trade, and Income
American Economic Review · 2023 · Volume 113 · Issue 2
Abstract
This paper quantifies the contribution of technology gaps to international income inequality. I develop an endogenous growth model where cross-country differences in R&D efficiency and cross-industry differences in innovation and adoption opportunities together determine equilibrium technology gaps, trade patterns, and income inequality. Countries with higher R&D efficiency are richer and have comparative advantage in more innovation-dependent industries. I calibrate R&D efficiency by country and innovation dependence by industry using R&D, patent, and bilateral trade data. Counterfactual analysis implies technology gaps account for one-quarter to one-third of nominal wage variation within the OECD.
Keywords
Firm Behavior: Theory, Production, Cost, Capital, Total Factor, and Multifactor Productivity, Capacity, Personal Income, Wealth, and Their Distributions, Empirical Studies of Trade, Innovation and Invention: Processes and Incentives, Technological Change: Choices and Consequences, Diffusion Processes, Empirical Studies of Economic Growth, Aggregate Productivity, Cross-Country Output Convergence
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