Essays on technology, trade, and welfare

Graduation date: 2008Technology is a key determinant of comparative advantage among nations. As information technology improves and the nations of the world become economically integrated, concern arises over the dissipation of high-income economies’ technological advantage. The three essays in this dissertation explore the trade and technology relationship, which is essential to economic growth in both high- and low-income nations.\ud The first essay employs a monopolistic competition framework to investigate the effects – on each country’s relative wages, share of global markets, and welfare – of the productivity convergence between a technological leader and follower. Results indicate technological convergence improves the follower’s competitiveness at the expense of the leader’s. Nevertheless, the leader’s welfare improves unambiguously on account of the increase in its terms of trade, while the follower’s welfare changes in a direction depending on the relative strength of convergence’s income and terms-of-trade effects. We use data from 17 food industries in 30 countries, 1993-2001, to test these analytical predictions. Convergence has lifted followers’ income and global value-added share. Followers’ welfare has risen since convergence’s income improvement has outweighed its terms-of-trade deterioration. Simultaneously, leaders’ welfare has improved in response to their improved terms of trade.\ud The second essay employs data from 35 countries in 128 ISIC 4-digit manufacturing industries, 1993 - 2001, to test the empirical validity of these same hypotheses for the international manufacturing sector. We find that, just as in the food sector, convergence improves followers’ welfare through its positive income effects. However, we do not find empirical evidence of convergence’s terms-of-trade effects.\ud The third essay examines trade liberalization’s effects on the geographical distribution of productivity, and consequent cross-country resource and market-share allocations, of five processed food industries. We find that the mean and other quantiles of the global productivity distribution shift to the right as international trade liberalizes. The latter result implies that resources are reallocated toward countries with faster productivity growth.\ud The three essays jointly highlight the important influence of global integration and technological convergence on nations’ economic growth and well-being. However, policies promoting integration and convergence should pay attention to the consequent intra-country redistribution of income between producers and consumers