Trade in capital goods during the golden age, 1953-1973

Abstract

There is an important consensus in considering “technological catch-up” with the United States as one of the main sources in explaining economic growth and convergence in the European countries after the Second World War. A set of special circumstances have to meet for catching-up to occur. Among these circumstances, the development of a new international order more favourable to trade, especially in Western Europe and between Europe and the U.S., allowed the intensification of trade in goods and services. In this paper we highlight the role of trade in capital goods for explaining economic growth and convergence in Europe, as it should be considered an influential factor in the diffusion of new technology. We present annual data on trade in capital goods and estimate a gravity equation for 18 countries during 1953-1973. Following Eaton and Kortum(2001) we add a new variable to the gravity model which reflects differences in technology between the exporter and the importer countries. We conclude that trade in capital goods was widely led by this gap in productivity and that the importance of distance was changing over time as United States was loosing technological advantage over Europe.