Exported Knowledge Fuels Development, But Doesn’t Travel Far

 

Development
Faculty Researcher Ricardo Hausmann, Professor of the Practice of Economic Development, Harvard Kennedy SchoolPaper Title International Knowledge Diffusion and the Comparative Advantage of Nations
Coauthors Dany Bahar, Harvard Kennedy School; Cesar Hidalgo, mit

Understanding how technology and knowledge hop across national borders is vital in explaining how countries develop economically and why they develop at different speeds.

There are various theories about how technology moves. Some hold that it is embedded in products, such as machines, so it spreads quickly and widely. Others hold that knowledge can be acquired or copied from one company by another through a variety of channels.

But a growing body of economists believe that technology is to be found not simply in a machine or its constituent parts, in blueprints or instruction manuals, but in the tacit knowledge of those who produce it, and that tacit knowledge is spread through human interactions, which usually requires proximity.

Ricardo Hausmann, Professor of the Practice of Economic Development at Harvard Kennedy School, and his coauthor Cesar Hidalgo, of mit, have been pioneers in the understanding of economic complexity and its role in economic development: Countries have certain capabilities, and the more capabilities they have, the more likely they are to grow economically.

In a new research paper, Hausmann, Hidalgo, and Dany Bahar, an hks doctoral candidate, looked at how knowledge moves across countries.

“In a world in which knowledge diffuses preferentially at short ranges, a country’s economic structure, as well as its evolution, will be shaped by the tacit knowledge available in neighboring countries,” they write. “As a consequence, the evolution of a country’s comparative advantage, productivity and economic growth will be partially determined by the amount and kind of tacit knowledge that exists in its neighborhood.”

But measuring the movement of knowledge is not easy. The researchers hit upon an ingenious method — looking at the goods that countries export — and specifically tracked new products. “Making a product requires varying amounts of specific tacit knowledge,” they write. “If this is so, then the similarity in the composition of exports between countries at any point in time and its dynamic evolution must have acquired the requisite knowledge from somewhere.”

They found that technological spillover is strongest across short distances, and that it is slower for more complex products. The researchers looked at several hundred products traded between roughly 100 countries (those for which sufficient data was available). They also controlled for factors other than technology that might account for similarity in the goods exported, such as geography, climate, geology, or culture.

Hausmann and his coauthors found that the probability that a country will add a product to its export basket is, on average, 65 percent greater if another country in its “neighborhood” is exporting that same product.

“We find this surprising,” they write, “because neighbors trade more intensely, and this should specialize countries in different rather than similar products, in order to exploit the gains from trade. The fact that neighbors tend to export the same products, even when primary and resource-based products are excluded, is suggestive of localized intra-industry technological spillovers.”

The researchers also found that diffusion has accelerated over time, becoming more frequent now than it was three decades ago, and “hinting that bridges between people in different countries have increased, as global communications develop.” In the end, they say, this localized diffusion of tacit knowledge “can help explain the well-known fact that rich and poor countries tend to be geographically clustered.”


— by Robert O'Neill

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“In a world in which knowledge diffuses preferentially at short ranges, a country’s economic structure, as well as its evolution, will be shaped by the tacit knowledge available in neighboring countries,” the authors write.