Cross-country technology gap in Latin America

Abstract

Purpose – The purpose of this paper is to investigate the factors influencing the total factor productivity (TFP) gap between the USA and eight Latin American countries for the period of 1970-2000. Design/methodology/approach – The paper provides an explicit application of TFP estimation by employing a growth accounting approach (Solow Residual) in the presence of non-constant returns to scale and a non-parametric approach (DEA – Malmquist Index) while relaxing the scale-related constraint. A macro-based economic model of innovator and follower countries is employed to explore the linkage between technology gaps and innovations, labor productivity, trade openness, foreign direct investment, and adult workforce illiteracy rates. A pooled model and a fixed effects model are used to determine the factors of the technology gap between the innovator and the follower countries. Findings – The results show that the labor productivity gap, adult work force illiteracy rates, patent filing gap, and trade openness are significant determinants of the technology gap between innovator and follower country. Practical implications – Latin American countries would benefit from the technology diffusion from an innovator country; but a minimum threshold of human capital, such as adult workforce illiteracy rates and patent filing has to be met. The authors find government policies on trade openness also have large effects on technology limitations in foreign countries. Originality/value – This paper is of value to researchers, policy makers, and economic development specialists trying to improve the rate of technology adoption and innovation.