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Innovation, Diffusion, and Trade

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  • Jonathan Eaton
  • Samuel Kortum

Abstract

We explore the determinants of research specialization across countries and its consequences for relative wages. Using a dynamic Ricardian model we examine the effects of faster international technology diffusion and lower trade barriers on the incentive to innovate. In the absence of any diffusion at all, countries devote the same share of resources toward research regardless of trade barriers or research productivity. As long as trade barriers are not too high, faster diffusion shifts research activity toward the country that does it better. This shift in research activity raises the relative wage there. It can even mean that, with more diffusion, the country better at research ends up with a larger share of technologies in its exclusive domain.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12385.

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Date of creation: Jul 2006
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Publication status: published as Sheshinski, Eytan, Robert J. Strom, and William J. Baumol (eds.) Entrepreneurship, Innovation, and the Growth Mechanism of the Free-Enterprise Economies. Princeton and Oxford: Princeton University Press, 2007.
Handle: RePEc:nbr:nberwo:12385

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  1. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and Productivity in International Trade," Boston University - Institute for Economic Development 105, Boston University, Institute for Economic Development.
  2. Jonathan Eaton & Samuel Kortum, 2004. "Trade in Capital Goods," Levine's Working Paper Archive 228400000000000019, David K. Levine.
  3. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
  4. Gancia, Gino, 2003. "Globalization, Divergence and Stagnation," Seminar Papers 720, Stockholm University, Institute for International Economic Studies.
  5. Jonathan Eaton & Eva Gutierrez & Samuel Kortum, 1998. "European Technology Policy," NBER Working Papers 6827, National Bureau of Economic Research, Inc.
  6. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  7. Eaton, Jonathan & Kortum, Samuel, 1999. "International Technology Diffusion: Theory and Measurement," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 537-70, August.
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Cited by:
  1. Li, Yao Amber, 2010. "International Trade, Technology Diffusion, and the Role of Diffusion Barriers," MPRA Paper 39409, University Library of Munich, Germany, revised 01 Dec 2011.
  2. Gao, Xiang, 2009. "Macroeconomic Analysis on the Basis of Trade Theory: A Review Essay," MPRA Paper 18380, University Library of Munich, Germany.
  3. Andres Rodriguez-Clare, 2007. "Trade, Diffusion and the Gains from Openness," NBER Working Papers 13662, National Bureau of Economic Research, Inc.
  4. Natalia Ramondo & Andrés Rodríguez-Clare, 2009. "Trade, Multinational Production, and the Gains from Openness," NBER Working Papers 15604, National Bureau of Economic Research, Inc.
  5. Ju, Jiandong & Yang, Xuebing, 2009. "Hicks theorem: Effects of technological improvement in the Ricardian model," International Review of Economics & Finance, Elsevier, vol. 18(2), pages 239-247, March.

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