Domestic Innovation and International Technology Diffusion as Sources of Comparative Advantage
20 Pages Posted: 15 Jan 2019 Last revised: 17 Jul 2019
Date Written: 2018
Productivity differences across countries determine patterns of international tradeâ€”hence, comparative advantage. We use a multi-industry model of international trade to estimate a measure of industry productivity. We then quantify the effect that domestic innovation and technology diffusion have in explaining differences in productivity across countries and industries. Consistent with standard growth theories, we find the following: (i) Higher-income countries benefit more from domestic innovation than lower-income countries, whereas lower-income countries benefit more from technology diffusion; and (ii) the speed of convergence is larger for those countries and industries that are farther away from the technology frontier. To the extent that productivity differences determine comparative advantage, our findings suggest that domestic innovation and technology diffusion are endogenous sources of comparative advantage.
JEL Classification: F12, O33, O41, O47
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