Comparative Advantage in Innovation and Production

Mariano A. Somale
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Mariano A. Somale: https://www.federalreserve.gov/econres/mariano-a-somale.htm

No 1206, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper develops a multi-country, general equilibrium, semi endogenous growth model of innovation and trade in which specialization in innovation and production are jointly determined. The distinctive element of the model is the ability of the agents to direct their research efforts to specific goods, in a context of heterogeneous innovation capabilities across countries and contemporaneous decreasing returns to R&D. The model features a two-way relationship between trade and technology absent in standard quantitative Ricardian trade models. I calibrate the model using a sample of 29 countries and 18 manufacturing industries and quantify the importance of endogenous adjustments in technology. I find that endogenous adjustments in technology due to directed research can account for up to 52.8% of the observed variance in comparative advantage in production. In addition, the model suggests that standard Ricardian models overestimate the reductions in real income from increases in trade costs and underestimate the increment in real income due to trade liberalizations.

Keywords: Trade; Innovation; Directed research; Quantitative models (search for similar items in EconPapers)
JEL-codes: F10 F11 O30 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2017-05
New Economics Papers: this item is included in nep-dcm, nep-dge, nep-gro, nep-ino and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1206

DOI: 10.17016/IFDP.2017.1206

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