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  -