Marti Mestieri

Abstract

We show that trade liberalization can reduce technology diffusion. Using Brazilian data,we document that tariff cuts lead to fewer technology transfers from foreign to Brazilian firmsand a decline in Brazilian firms’ citations of foreign patents. The most substantial drop incitations occurs among firms located near those receiving technology transfers, largely drivenby a reduction in citations to firms that previously transferred technology to Brazil. Thesefindings suggest that lowering import tariffs can slow the diffusion of foreign ideas by reducingtechnology transfers. In our quantitative model, when Brazilian tariffs fall, foreign firms optto export their products directly rather than transfer their technology, weakening knowledgediffusion. An optimal subsidy for technology transfers amplifies the welfare gains from tradeliberalization by a factor of four.