Heterogeneous Technology Diffusion and Ricardian Trade Patterns

The principle of Ricardian technology differences as a source of trade is well established in the theory of international economics. This theory argues that countries can focus on producing products in which they have comparative productivity advantages; subsequent exchanges afford higher standards of living in all countries than are possible without trade. While a key theory, economists have struggled to quantify the empirical importance of comparative technology advantages and their link to trade. This is especially difficult given the high degree to which technology states of countries and industries can be correlated with other traits about countries that could also promote trade. This study contributes to scholarship on Ricardian advantages through the development of a substantially larger dataset than previously utilized and the study of changes in technology/trade over time. Even more important, the study provides a tool for isolating relative technology growth in exporting countries across industries. The foundation for this identification is the modeling of Ricardian advantages through differences across countries and their industries in terms of their access to the U.S. technology frontier. The differences arise due to historical migration patterns (e.g., Chinese migration to San Francisco versus Hispanic migration to Miami). The study analyzes how technologies flow differentially to countries and industries based upon the historical settlement patterns of migrants from countries and the spatial development of new technologies in the United States (i.e., which technologies flourished in San Francisco versus Miami). The study finds that these differential technology flows are powerful enough to influence world trade patterns, and in the process, they provide new identification to an age-old theory. Key concepts include:

• A core principle in international economics concerns trade among countries due to technology differences. While often this theory constitutes the first chapter in trade textbooks, empirical measurement of these relationships has been challenging.
• The empirical work in the study finds that comparative advantages are an important determinant of trade. Moreover, Ricardian differences are relevant for explaining changes in trade patterns over time.
• The study documents for emerging economies an economic consequence of emigration to frontier economies like the United States. Technology transfer from overseas migrants is strong enough to meaningfully promote exports from the home country.
• Beyond quantifying the link between technology and trade for manufacturing, this paper also contributes to research on the benefits and costs of emigration to the United States for the migrants' home countries (i.e., the "brain drain" or "brain gain" debate).