Trade and the accumulation and diffusion of knowledge

The author examines the properties of a dynamic disequilibrium model focused on trade specialization and the accumulation of knowledge. Steady state analysis shows that: a) under perfectly balanced growth international diffusion of knowledge is irrelevant for growth; and b) under unbalanced growth, the process of structural change may be enhanced by the effects on the domestic accumulation of knowledge of domestic spillover. The growth of foreign knowledge has an ambivalent effect on domestic performance because it is both a complement to, and a substitute for, domestic knowledge. Whenever these two effects do not perfectly match, the diffusion of international knowledge is associated with unbalanced growth. Imports of knowledge intensive goods may not lead to higher growth unless there is sufficiently strong trade performance in the knowledge -intensive sectors. Unbalanced growth is also associated with"output catching up"."Technological catching up"is necessary but not sufficient for balanced growth. Parameter estimates were obtained for France, Germany, Italy, Japan, and the United Kingdom. Results appear to be consistent with theoretical expectations about the importance of"price"and"nonprice"determinants of trade performance in the four sectors as well as with the distribution of revealed comparative advantages. Simulation exercises confirm steady-state results on the relevance of country differences in trade specialization and in the domestic accumulation of knowledge as they affect growth. They also clarify the relationship between growth and changes in the structure of trade specialization.