North--South Trade-related Technology Diffusion and Productivity Growth: Are Small States Different?

The economies of small developing states tend to be more fragile than those in large ones. This paper examines this issue in a dynamic context by focusing on the impact of education and North--South trade-related technology diffusion (NRD) on TFP growth in small and large states in the South. The main findings are: (i) <italic>TFP</italic> growth increases with <italic>NRD</italic>, education and the interaction between the two; (ii) the impact of <italic>NRD</italic>, education and their interaction on <italic>TFP</italic> growth in small states is over three times that for large countries; and (iii) the greater <italic>TFP</italic> growth loss in small states has two brain--drain related causes: a substantially greater sensitivity of <italic>TFP</italic> growth to the brain drain, and brain drain levels that are much higher in small than in large states.