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Technology and Bilateral Trade

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  • Eaton, Jonathan
  • Kortum, Samuel

Abstract

We develop a Ricardian model to explore the role of trade in spreading the benefits of innovation. The theory delivers an equation for bilateral trade that, on its surface, resembles a gravity specification, but identifies underlying parameters of technology. We estimate the equation using trade in manufactures among the OECD. The parameter estimates allow us to simulate the model to investigate the role of trade in spreading the benefits of innovation and to examine the effects of lower trade barriers. Typically foreigners benefit by only a tenth as much as the innovating country, but in some cases the benefits to close neighbors approach those of the innovator.

Suggested Citation

Handle: RePEc:ags:bouied:315947
DOI: 10.22004/ag.econ.315947
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