Globalization Localized Technological Change and the Knowledge Economy

This work elaborates a dynamic version of the H-O model based upon the hypothesis that technological change is endogenous and biased towards the most intensive use of production factors that are locally most abundant in comparative terms. In the standard H-O model, the difference in the levels of the output elasticity of inputs is assumed to be exogenous. In this dynamic version, instead, this difference is fully endogenous. This approach rests upon the localized technological change approach that integrates the advances of the new economic of knowledge with the Schumpeterian notion of creative reaction, the analysis of induced technological change and technological congruence. According to the Schumpeterian notion of innovation as the result of the creative reaction, firms caught in out-of-equilibrium conditions by the changing conditions of both factor and product markets might try and react by means of the introduction of biased technological changes directed towards the most intensive use of inputs that are locally most abundant in relative terms. Their success and hence the actual introduction of technological innovations will depend upon the availability of appropriate knowledge externalities. According to this framework, countries exposed the out-of-equilibrium conditions engendered by the globalization of product markets can react with the successful introduction of innovations aimed at increasing the intensity of capital -the most abundant input- with the increase of its output elasticity. For the same token they can contrast the twin globalization of capital and product markets with the introduction of the technology production function that makes intensive use of technological knowledge as the most abundant input. Technological knowledge in fact is characterized by its strong collective and systemic character that limits its dissemination and use outside its context of origin.