Technology adoption, government policy and tariffication

Abstract

We integrate trade policy into an open-economy model of technology adoption to investigate the impact of alternate trade barriers on the equilibrium diffusion of a cost-saving technology. It is shown that even when ad-valorem tariffs have a neutral impact on technology adoption, non-tariff barriers such as quotas can be used to affect the speed of technology diffusion in both the home and foreign countries. In addition, we demonstrate how, in an open-economy setting, tariffication (i.e., the conversion of quotas to ad-valorem tariffs) can lead to faster technology adoption world-wide. © 2013 Elsevier B.V.