Absorptive capacity: On the creation and acquisition of technology in development

Recent studies on technological transformation in developing countries emphasize that successful industrialization requires both technological information and a good understanding of its implementation. In an open economy context it is shown that the sustained gains in growth derived from a move towards an open trade regime evaporate as soon as one gives up the arguably inadequate notion of 'technology' as being all-inclusive. In this paper, technology is only implementable as the labor force has built up the corresponding skills. Trade liberalization disseminates new technologies and goods to the domestic economy, and has beneficial effects on the level of final output and consumption. But sustained growth gains are only forthcoming if in addition to the arrival of new technologies also skills are accumulated at a higher rate than before the regime change. I argue that this explains part of the variation in the long-run growth effects of trade liberalization in newly industrializing countries.