Product variety and technical change

Motivated by growth models based on the variety of capital goods, recent empirical studies have established links between productivity and several trade-based measures of product variety, carrying the implication that these measures may represent technology. We study this implication by explicitly proposing the variety of capital goods available for production as a direct measure of the state of technology. Within a simple growth and development framework, we derive a 'conditional technological convergence' hypothesis on how this variety should behave if it were indeed to represent the state of technology. The hypothesis is tested with highly disaggregated trade data, using tools from the income convergence literature. The results suggest that a trade-based count measure of the variety of available capital goods, allowing for product differentiation by country of origin, indeed behaves 'as if' it represented technology when change of technology is understood as a learning process, and that there is conditional technological convergence among our panel of mainly OECD and transition economies.