Technology gaps and transfers: their effect on growth

Here are some early conclusions from my estimates on the effects of technology gaps and transfers on economic growth:

* Imports of technical goods (except oxygen for some reason) are associated with lower income growth, even in the presence of log per capita income as a determinant variable. There is probably an estimation problem here – lags of foreign direct investment are used as instruments in the equations, which don't work well with trade variables because of endogeneity. The Sargan tests for exogeneity in the trade equations have tiny p-values. The effect will be to decrease the coefficient on trade, since more growth leads to more trade, so any initial positive effect of trade looks lower, over and above the fact that growth slows down in any case as people get richer.

* Openness and foreign direct investment per person is associated with higher growth.

* Large technology gaps lead to increased growth, and are highly significant, in both variable-minimal MRW/Solow regressions and expanded ones.

* Introduction of technology gaps as a determinant improves the fit of all Solow variables in the basic model – education significance and impact increases threefold (highly educated countries also have smaller gaps so education has a direct positive effect and proxy negative effect for the gap in the basic model), and moderate effect on investment effects too (same reason). However, slightly unexpected and from my perspective unfortunate is that the coefficient on previous period income increases in size and significance. Possibly the introduction clarifies the various relations, and one effect (via the education and investment effects) is to improve the coefficient measurement on lagged income too.

* Adding a cross term (gap*transfer) generally gives a term with far higher significance than individual transfer terms, and reduces their significance considerably. The effect is large with openness and foreign direct investment. The effect is much less noticeable with trade variables, although the estimation problem noted above may apply. To an extent the cross term makes the trade term more negative, indicating, as one of a few likely explanations, that it is capturing some of the positive effect that trade brings and leaving the negative. The cross term is also highly significant in models with a gap term, although the gap term retains some significance and the cross term does not always have the expected, positive, sign.