Lead Markets, Innovation Differentials and Growth

This article suggests that the specialization of countries in the in-ternational trade is determined by the lead-lag market pattern of national mar-kets. Many internationally successful innovations have been adopted first in one country while other countries initially either preferred other designs or an estab-lished product. A model for the international diffusion of innovations is presented in which nationally preferred innovation designs compete to become a globally dominant design. In this model, there are country-specific market attributes that increase the likelihood that the choice a country makes among alternative tech-nologies is adopted around the world. It is argued that technological knowledge gaps are not the origin of an international competitive advantage. Instead, a country gains a competitive advantage because a specific innovation design was adopted earlier than in any other country. This gives local firms a head start in producing, gather marketing intelligence and securing the property rights of a globally successful innovation. In countries with lag market characteristics, do-mestic innovations are less likely to get adopted worldwide. They often switch from a domestic innovation design to a foreign innovation design, which increases imports. The lead-lag market explanation of trade specialization has implications for national policies. In this model domestic innovations do not always foster ex-ports; idiosyncratic innovations induced by lag market contexts can hamper the export chances of local firms and in the end lead to an increase in imports. It is suggested that in order to increase exports, national policies have to distinguish between a domestic lead and lag market context in each industry. While in a lead market context, traditional policy instruments that enhance the rate of innova-tions are effective, in a lag market situation national follower strategies are more appropriate.