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Comparative Advantage in Innovation and Production

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  • Mariano Somale

Abstract

This paper develops a dynamic model of innovation and international trade in which agents can direct their research efforts to specific goods in the economy. Trade affects the direction of innovation through its impact on the expected market size for an invention, leading to a two-way relationship between trade and technology absent in standard quantitative Ricardian models. Following a theory-consistent strategy to estimate the extent of endogenous adjustments in technology, I find that they can account for about half of the observed variance in comparative advantage in production in a sample of 29 countries and 18 manufacturing industries. In addition, the model suggests that standard Ricardian models overestimate the reductions in real income from increases in trade costs and underestimate the rise in real income due to trade liberalizations.

Suggested Citation

  • Mariano Somale, 2021. "Comparative Advantage in Innovation and Production," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(3), pages 357-396, July.
    • Handle: RePEc:aea:aejmac:v:13:y:2021:i:3:p:357-96
    DOI: 10.1257/mac.20180295
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    Citations

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    Cited by:

    1. Marc J. Melitz & Stephen J. Redding, 2021. "Trade and innovation," CEP Discussion Papers dp1777, Centre for Economic Performance, LSE.
    2. Evagelia Koutridi & Dimitrios Tsiotas & Olga Christopoulou, 2023. "Examining the Spatial Effect of “Smartness” on the Relationship between Agriculture and Regional Development: The Case of Greece," Land, MDPI, vol. 12(3), pages 1-22, February.
    3. Holger Breinlich & Elsa Leromain & Dennis Novy & Thomas Sampson, 2021. "Import liberalization as export destruction? Evidence from the United States," CEP Discussion Papers dp1779, Centre for Economic Performance, LSE.

    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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