The Technology Cycle and Inequality

Motivated by the observed rise in the trade of technology, I analyse how technology would spread in a frictionless market. In such a world, low-skilled agents prefer to use old technology because it costs less; their skills do not justify the use of frontier technology. The model generates a technology-life cycle of somewhere between 68 and 124 years and <it>per-capita</it> income differential factors between 2.3 and 4.5. The model matches fairly well the cross-section relation between a country's income <it>per capita</it> and the average age of the technologies that its residents use. It is also consistent with aspects of the observed positive relation between income and imports of technology.