Causality Between International Trade and International Patenting: A Combination of Network Analysis and Granger Causality

This paper combines network analysis with Granger causality tests to examine the possible causal relationship between a country’s position in the international trade and international patenting networks. This combination has not been examined thus far. The first stage applies social network analysis to the international patenting and international trade networks using data for 82 countries for the period 1995–2018. The international patenting network and international trade network evolution shows that the linking frequency of patenting abroad and trade participation increased during the sample period. In the second stage, panel data Granger causality tests were applied to the computed metrics of the two networks. The results of the Granger causality tests suggest two-way causality between a country’s relative position as recipient of foreign patents and imports. This might suggest an endogeneity or feedback effect between incoming foreign patenting and imports. Granger causality suggests causality from the country’s relative position as sender of patents abroad to exports, but not vice versa. This last finding indicates that by recognizing business opportunities in a destination country, patentees decide to register their innovation in the foreign country before proceeding to export.