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Domestic Innovation and International Technology Diffusion as Sources of Comparative Advantage

Ana Maria Santacreu and Heting Zhu
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Heting Zhu: Federal Reserve Bank of St. Louis

Review, 2018, vol. 100, issue 4, 317-336

Abstract: Productivity differences across countries determine patterns of international trade—hence, comparative advantage. We use a multi-industry model of international trade to estimate a measure of industry productivity. We then quantify the effect that domestic innovation and technology diffusion have in explaining differences in productivity across countries and industries. Consistent with standard growth theories, we find the following: (i) Higher-income countries benefit more from domestic innovation than lower-income countries, whereas lower-income countries benefit more from technology diffusion; and (ii) the speed of convergence is larger for those countries and industries that are farther away from the technology frontier. To the extent that productivity differences determine comparative advantage, our findings suggest that domestic innovation and technology diffusion are endogenous sources of comparative advantage.

JEL-codes: F12 O33 O41 O47 (search for similar items in EconPapers)
Date: 2018
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