Trade in capital goods

Innovative activity is highly concentrated in a handful of advanced countri es. These same countries are also the major exporters of capital goods to t he rest of the world. We develop a model of trade in capital goods to asses s its role spreading the benefits of technological advances, Applying the m odel to data on production and bilateral trade in capital equipment, we est imate the barriers to trade in equipment. These estimates imply substantial differences in equipment prices across countries. We attribute about 25% o f cross-country productivity differences to variation in the relative price of equipment, about half of which we ascribe to barriers to trade in equip ment. (C) 2001 Elsevier Science B,V, All rights reserved.