Domestic Innovation and International Technology Diffusion as Sources of Comparative Advantage

20 Pages Posted: 15 Jan 2019 Last revised: 17 Jul 2019

See all articles by Ana Maria Santacreu

Ana Maria Santacreu

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Heting Zhu

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Date Written: 2018

Abstract

Productivity differences across countries determine patterns of international trade—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

Suggested Citation

Santacreu, Ana Maria Maria and Zhu, Heting, Domestic Innovation and International Technology Diffusion as Sources of Comparative Advantage (2018). Review, Vol. 100, Issue 4, pp. 317-336, 2018, Available at SSRN: https://ssrn.com/abstract=3315943

Ana Maria Maria Santacreu (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Heting Zhu

Federal Reserve Banks - Federal Reserve Bank of St. Louis

P.O. Box 442
St. Louis, MO 63166-0442
United States

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