Technological adaptation, trade, and growth

Based on Grossman and Helpman's 1991 seminal work, the authors provide a simple model extension where innovations created in the high-tech sector may be assimilated or adapted by the low-tech sector, thus generating nondecreasing returns in the production function of the latter. When applying a Heckscher-Ohlin framework the authors find that the effects of technological diffusion allow a country relatively scarce in human capital to benefit from nondecreasing rates of growth through its low-tech sector. They test this idea by using a dynamic panel data approach in order to deal with simultaneity and country heterogeneity. Their results are consistent with the predictions of the model and robust to a broad range of definitions of technological intensity.