Theorectical and Empirical Study on the Impact of Trade and Foreign Direct Iinvestment on Technological Spillovers

Productivity of a country especially developing nations largely depends on foreign endeavors through technological spillovers as a crucial engine for growth. Using a constructed panel of 47 countries from 1990 to 2006, this paper theoretically and empirically investigates two of the most important channels for technology spillovers (trade and FDI). The results confirm the fact that trade remains an important source for productivity increases via technological spillovers for both developed and developing countries, surpassing their domestic R&D efforts. Foreign direct investment seems to have a significant but much smaller impact, predominantly in developing countries. Openness to both trade and FDI from developed nations is beneficial for all countries but mostly to developing economies.