HUMAN CAPITAL, TRADE AND LONG-RUN PRODUCTIVITY. TESTING THE TECHNOLOGICAL

Abstract

An important characteristic of the role of foreign trade in the technological catch-up of countries is the complementary nature of technological change and human capital formation. Education is likely to have a crucial impact on total factor productivity because it determines the capacity of an economy to adopt and to implement efficiently technology from abroad. However, the role of human capital as a pre requisite for technology absorption although theoretically acknowledged has been empirically neglected. Empirical studies in this domain do not clearly test the mechanisms through which trade affects total factor productivity of a given country. Using cointegration techniques, we demonstrate that the interaction between human capital and machinery imports is the most critical determinant of Portuguese long-run total factor productivity.