NORTH-SOUTH KNOWLEDGE SPILLOVERS AND COMPETITION - CONVERGENCE VERSUSDIVERGENCE

Technology spillovers from high-productivity countries in the North al low low-productivity countries in the South to improve productivity in high-tech sectors relatively easy. However, the South's share in worl d goods markets for high-tech products is relatively low, which reduce s opportunities for learning by doing. Our simple Ricardian endogenous growth model shows how the balance between toughness of competition i n trade and the strength of North-South spillovers determines whether productivity levels diverge, partially converge or fully converge in t he long run. If convergence prevails, the North is confronted with dec lining employment in high-tech sectors. Temporary (trade) policy measu res can turn a diverging economy into a converging one.