International Trade and Productivity Growth: Exploring the Sectoral Effects for Developing Countries

IMF Working Papers, January 1, 2000

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The paper estimates an empirical relation based on Krugman’s ‘technological gap’ model to explore the influence of the pattern of international trade and production on the overall productivity growth of a developing country.
A key result is that increased import competition in medium-growth (but not in low- or high-growth) manufacturing sectors enhances overall productivity growth.
The authors find that a production-share weighted average of (technological leaders’) sectoral productivity growth rates has a significant effect on the rate of aggregate productivity growth.

Empirical estimation based on Krugman’s ‘technological gap’ model.
Focus on the influence of patterns of international trade and production on aggregate productivity growth in developing countries.

Increased import competition in medium-growth manufacturing sectors enhances overall productivity growth.
No similar productivity-enhancing effect from import competition is found for low-growth or high-growth manufacturing sectors.
A production-share weighted average of technological leaders’ sectoral productivity growth rates significantly affects aggregate productivity growth.

Subjects: Imports, International trade, Production, Productivity, Technology, Technology transfer, Total factor productivity
Keywords: East Asia; gap in a sector; growth performance; Imports; Middle East, North Africa; Productivity; productivity gap; Productivity Growth; s TFP growth; South Asia; Sub-Saharan Africa; Technological Gap; technology lag; Technology transfer; TFP growth rate; Total factor productivity; trade effect; trade index; Trade Liberalization; trade ratio; trade variable; WP

International Monetary Fund — Working Paper No. 2000/017