Innovation, Diffusion, and Trade

31 Pages Posted: 3 Aug 2006 Last revised: 12 Jul 2012

See all articles by Jonathan Eaton

Jonathan Eaton

Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Samuel S. Kortum

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: July 2006

Abstract

We explore the determinants of research specialization across countries and its consequences for relative wages. Using a dynamic Ricardian model we examine the effects of faster international technology diffusion and lower trade barriers on the incentive to innovate. In the absence of any diffusion at all, countries devote the same share of resources toward research regardless of trade barriers or research productivity. As long as trade barriers are not too high, faster diffusion shifts research activity toward the country that does it better. This shift in research activity raises the relative wage there. It can even mean that, with more diffusion, the country better at research ends up with a larger share of technologies in its exclusive domain.

Suggested Citation

Eaton, Jonathan and Kortum, Samuel S., Innovation, Diffusion, and Trade (July 2006). NBER Working Paper No. w12385. Available at SSRN: https://ssrn.com/abstract=921551

Jonathan Eaton (Contact Author)

Leonard N. Stern School of Business - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Samuel S. Kortum

University of Chicago - Department of Economics ( email )

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United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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