Inappropriate Technology * We Beneþtted from Useful Discussions and Comments From

In this paper, we investigate the incentives developed (rich) countries might have in improving technologies speciÞc to developing (poor) regions, even if they are not altruistic toward them. We develop a simple model of international trade between two regions, in which all individuals have similar preferences deÞned over an inferior good and a luxury good. The poor region is capable of producing only the inferior good, while the rich region can produce both goods. We show that the rich region has an incentive to donate its own technology to the poor region if it can be given and used costlessly. By raising the efficiency of the productive process of the recipient region, the developed region can redirect its own productive resources toward the luxury good; it can also gain access to a more diversiÞed set of consumption choices. Even when technology is country speciÞc, and costly adaptation of the technology to the recipient region’s characteristics is required, thereby rendering it inappropriate for local use, we show that there are parameter conÞgurations for which the rich region has an incentive to incur this cost. Indeed, there are cases where the rich region would prefer to improve the poor region’s technology for producing the inferior good rather than its own. Such an investment can increase the welfare of both regions. ∗Preliminary and in progress. Comments and suggestions are welcome. e-mail: ana.fernandes@cemÞ.es, [email protected]. We beneÞtted from useful discussions and comments from Robert Lucas, John Matsusaka, and participants at the 2001 SED meeting at Stockholm, Sweden, and a workshop at USC. We especially thank Doug Gollin for generously sharing data on the Green Revolution with us and Doug Joines for his comments and support. Financial support from the US Department of Education and USC’s CIBEAR is gratefully acknowledged.