The Impact of Technology on World Trade

Abstract

Growing world economy and varying demand resulted in the explosive expansion of exports worldwide. Manufacturing exports, which has become the main driver of exports, has grown enormously. At the same time, the role of developing countries is becoming more important. Also, export sophistication is an inevitable trend which affects overall export patterns. Understanding this circumstance, this thesis identifies the determinants which encourage this change. There are common or country specific factors which affect exports. This thesis, however, focuses on the role of the technology and postulates that a countrys level of technology is the key determinant of exports. Technology, which builds a production capacity (both qualitatively and quantitively), can improve a firm or a nations production competitiveness. Therefore, a countrys level of technology ultimately contributes to the export growth. Hence, this thesis aims to identify the relationship between the level of technology and a country's share of export in the world. Also, adapting Hummels and Klenows methodology, this research decomposes a countrys share on world export as an intensive margin and an extensive margin. Further, it aims to find out the impact of the level of technology on a countrys export share, intensive margin, and extensive margin. Therefore, it diagnoses the main channel (between intensive margin and extensive margin) of delivering the impact of the level of technology on a countrys share of export. R&D expenditure and High-technology exports are represents the level of technology of each country. This research tests eight different models. In general, the impact of technology on total world exports is not as high as the impact of income or labor, but the impact to manufacturing exports is higher than its impact to total exports. Results also demonstrate that, the contribution of the level of technology is delivered through intensive margin mostly. However, only for the analysis on the impact of high-technology exports on developing countries' share of exports, extensive margin plays more crucial role than intensive margin to deliver the effect of technology on the share of exports.