This paper examines the impact on total factor productivity (TFP) in Latin America and the Caribbean (LAC) and in other developing countries of trade-related technology diffusion from the North (denoted by NRD), education, and governance. The NRD of developing countries is defined as a weighted sum of R&D stocks in the North, with weights related to openness with the North's trading partners. Industryspecific NRD is based on the North's industry-specific R&D stocks, North-South trade patterns, and input-output relations in the South. The main findings are that: i) the impact of education and governance on TFP is significantly larger in LAC than in other developing countries, while the opposite holds for NRD; ii) education, governance and NRD have additional effects on TFP in LAC's R&D-intensive industries through their interaction with the other two variables; and iii) since NRD increases with openness to the North and with the North's R&D stocks, both variables raise the South's TFP directly as well as through interaction with education and governance. These interaction effects imply that increasing the level of any of the three policy variables -education, governance or openness- results in virtuous growth cycles. These are smallest for an increase in one of these variables, stronger for an increase in two of them, and strongest for an increase in all three variables.

El Trimestre Economico
Norman Paterson School of International Affairs

Schiff, M. (Maurice), & Wang, Y. (2012). La difusión de la tecnología relacionada con el comercio entre el norte y el sur: Círculos virtuosos de crecimiento en la América Latina. El Trimestre Economico, 79(314), 289–309.