The Role of Trade Policies in Innovation: The Case of Malawi

Trade openness is a key factor in making an economy more receptive to technology spillovers from the global market. This paper assesses how trade liberalization and processes of importing affect innovation in Malawi. Two measures of innovation are used at the macro-level: technological processes and products (TPP) and the technological intensity of imports. At the firm-level, four measures are used: new products, new methods, new logistics, and new ideas. At the macro-level, the results suggest that trade liberalization leads to increased imports of technological products, more than other products, and the benefits are relatively larger for imports from outside COMESA. Therefore, there is a limited role for further COMESA trade integration in regard to innovation enhancement from trade. However, when the technological intensity of imports is assessed, high-technology imports would benefit less than primary and resource-based imports regardless of origin, suggesting low absorption of foreign technologies. At the firm level, firms that reported facing obstacles from customs and trade regulations and those that face higher delays in clearing customs are less likely to innovate using all four measures. On the other hand, firms that use foreign-owned technology are more likely to innovate, confirming the channel through which trade impacts innovation.