Technology, Information and the Geography of Global and Regional Trade

Over the last two decades there have been various analytical breakthroughs within the fields of economic growth, trade and economic geography which have forced analysts to reconsider how these phenomena are related. Within the growth literature, the work of Romer (1986, 1987) and Lucas (1988) has re-focused our attention on the role which externalities in learning-by-doing (Arrow 1962) and human capital acquisition can play in augmenting factor inputs, thereby allowing for differential shifts in the relative long-term equilibrium growth rates of different economies. Between any two economies with equivalent factor stocks, the economy which benefits from such learning externalities will tend to exhibit a relatively higher equilibrium growth rate than the economy without such learning effects. This is because the learning externalities are perceived to provide an endogenous feedback to the factor inputs which relaxes the constraints imposed by the productivity properties associated with variable factor proportions. However, the argument implicit in these models is rather more subtle than this. This is because many technological changes are seen to embody certain endogenous characteristics (Arthur 1988) which may (Lewin 2002) have implications for not only the levels, but also the patterns and characteristics, of long-term investment. There may be differences in the extent to which such endogenous process take place even between advanced OECD economies, and understanding the reasons for these differences across countries brings us to the question of the relationships between growth, trade and geography.