TY - JOUR AU - Eaton, Jonathan AU - Kortum, Samuel TI - Innovation, Diffusion, and Trade JF - National Bureau of Economic Research Working Paper Series VL - No. 12385 PY - 2006 Y2 - July 2006 DO - 10.3386/w12385 UR - http://www.nber.org/papers/w12385 L1 - http://www.nber.org/papers/w12385.pdf N1 - Author contact info: Jonathan Eaton Department of Economics Pennsylvania State University 303 Kern Graduate Building University Park, PA 16801 E-Mail: jxe22@psu.edu Samuel S. Kortum Department of Economics Yale University P.O. Box 208264 New Haven, CT 06520 E-Mail: samuel.kortum@yale.edu AB - 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. ER -