A Schumpeterian approach to endogenous specialization in international trade

This chapter elaborates a Schumpeterian version of the H–O model (S–H–O) based on the hypothesis that technological change is endogenous and biased towards the most intensive use of production factors that are locally most abundant in comparative terms. In the standard H–O model, the differences between trading partners in the levels of the output elasticity of inputs and technological change are exogenous. The (S–H–O) model rests on the Schumpeterian notion of the creative response of firms which, caught in out-of-equilibrium conditions by the changing conditions of both factor and product markets, try to react by introducing biased technological changes directed towards the most intensive use of inputs that are locally most abundant in relative terms. The actual introduction of technological innovations, however, will depend on the availability of appropriate knowledge externalities. According to this framework, countries exposed to the out-of-equilibrium conditions engendered by enhanced globalization react with the introduction of new technologies biased towards the intensive use of technological knowledge as the most abundant and specific input. Technological knowledge in fact is characterized by its strong collective and systemic character that limits its dissemination and use outside its context of origin.