Technology transfer, institutions and development

•We explore the influence of foreign technology in developing countries.•Trade is not a sufficient vehicle for catching opportunities from foreign technology.•Similar export structure increases the absorptive capacity of importing countries.•The absorptive capacity of importing countries is further improved by institutions.•Well-functioning institutions allow transforming foreign technology into development opportunities.

In the recent decades, the flows of trade, capital, and technology across the national borders of developing countries have increased, and have produced the conditions for a faster transmission of knowledge. While the economic literature has mainly focused on how international technology transfer may affect standard economic performances, less attention has been paid to a broader development perspective. This paper fills this gap by addressing two main issues. First, it investigates whether the technology transfer conveyed by international trade flows has positively influenced the development paths of less advanced economies. Second, it focuses on whether country-specific structural features may support the impulse of technology transfer on development. Our results show that technology accumulated in rich countries may help poor countries achieve higher development levels more rapidly, and that well functioning institutions may improve the capacity to transform the imported technology into domestic development opportunities.