NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Innovation, Diffusion, and Trade

Jonathan Eaton, Samuel Kortum

NBER Working Paper No. 12385
Issued in July 2006
NBER Program(s):   ITI   PR

We explore the determinants of research specialization across countries and its consequences for relative wages. Using a dynamic Ricardian model we examine the effects of faster international technology diffusion and lower trade barriers on the incentive to innovate. In the absence of any diffusion at all, countries devote the same share of resources toward research regardless of trade barriers or research productivity. As long as trade barriers are not too high, faster diffusion shifts research activity toward the country that does it better. This shift in research activity raises the relative wage there. It can even mean that, with more diffusion, the country better at research ends up with a larger share of technologies in its exclusive domain.

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Document Object Identifier (DOI): 10.3386/w12385

Published: Sheshinski, Eytan, Robert J. Strom, and William J. Baumol (eds.) Entrepreneurship, Innovation, and the Growth Mechanism of the Free-Enterprise Economies. Princeton and Oxford: Princeton University Press, 2007.

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