45 Pages Posted: 22 Feb 2002
Date Written: February 2002
In this paper, we investigate incentives other than altruism that developed countries have in improving technologies specific to developing countries. We develop a simple model of international trade between two regions, in which all individuals have similar preferences defined over an inferior good and a luxury good. The poor region has a comparative advantage in the production of the inferior good, and the rich in the luxury good. Even when costly adaptation of the technology to the poor region's characteristics -- which makes the technology inappropriate for local use -- is required, we show that there are parameter configurations for which the rich region has an incentive to incur this cost. By raising the efficiency of the productive process of the developing region, the developed region can redirect its own productive resources toward the luxury good; it can also gain access to a more diversified set of consumption choices. Indeed, there are cases where the rich region would prefer to improve the poor region's technology for producing the inferior good rather than its own. Such technology transfers can increase the welfare of both regions. We apply our model to the Green Revolution and provide a quantitative assessment of its welfare effects.
Keywords: Technology improvements, Dynamic trade models, Welfare analysis
JEL Classification: O33, F11, F41
Suggested Citation: Suggested Citation