Trade‐induced Learning and Industrial Catch‐up

Abstract

This article develops a model of trade-induced learning whereby both domestic and cross-border learning externalities could drive long-run growth. This framework is used to synthesise the emerging empirical evidence, revealing how trade-induced learning could underpin the mechanics behind trade and growth in at least three important ways: first, trading matters, as firms might be able to increase their productivity due to export and import linkages with buyers and suppliers; second, whom you trade with matters, as richer and more technologically advanced trading partners offer more scope for trade-induced learning; and third, what products you trade matters.Developing the non-traditional tradable sector, notably manufacture is now at the core of many developing countries' industrialisation and growth strategies. The rationale behind this partly lies in the myriad problems associated with the alternatives. An expansion in non-tradables could be self-defeating, as movement in the terms of trade that this will cause also diminishes the gains to be had from it. Furthermore, an expansion in primary goods exports introduces increased vulnerability to trade-related shocks which plague economies that have remained undiversified and specialised mostly in traditional exports. On the other hand, specialising in manufacturing offers distinct advantages. World markets offer the benefits of scale and seemingly insatiable demand for highly differentiated manufactured products. Manufacturing also offers opportunities for a pattern of specialisation that is much more conducive for entrepreneurs in a country to latch on to new economic activities that could further enhance the country's productivity potential.Furthermore, contrary to the predictions of a number of early endogenous growth models, the emerging empirical evidence and recent trends suggest that even with increased trade, some initially less industrialised and technologically backward countries were still able to grow more robust manufacturing sectors and climb the technology and export sophistication ladder. The success stories include the so-called Asian 'tiger economies' and 'newly industrialised economies' or NIEs.

Does global value chain participation boost high technology exports?

“…It is worth noting that this result is remarkable since we are already controlling for some other well-known determinants of high-tech exports such as FDI, investment and human capital. Note that this result is in line with a broader literature reporting that it matters which countries you trade or interact with (Baliamoune-Lutz, 2019;Brambilla et al, 2012;Mendoza, 2010;Pahl & Timmer, 2020).…”

Chinese vs. US Trade in an Emerging Country: The Impact of Trade Openness in Chile

“…It is essential to give a word of caution regarding the limitations of this study, which is the absence of a clear distinction of the effects of intermediate inputs. The latter, especially in the case of labour productivity, would add more precision to the analysis, as studies have shown that access to cheaper imported inputs can raise productivity via learning, variety, and quality effects (Mendoza, 2010). Further exploration on the empirical part should take into account possible interactions of the main regressors with dummies proxying low, medium and high tech and R&D expenditure to assess the temporal effects on actual domestic industrial upgrading.…”

Export and variability in the innovative status

“…However, recent evidence gives us the intuition that, to completely understand the scope of learning-by-exporting effects, we should introduce a spatial dimension of trade to the analysis (Mendoza, 2010;Segarra-Blasco et al, 2022;Tse et al, 2017). Due to the characteristics of our data, we cannot identify spatial learning-by-exporting such as in Segarra-Blasco et al (2022).…”