79. Jonathan Eaton and Samuel Kortum
Technology and Bilateral Trade
September 1997
Abstract
We develop a Ricardian model to explore the role of trade in spreading hte benefits
of innovation. The theory delivers an equation for bilateral trade that, on its
surface, resembles a gravity specification, but identifies underlying parameters of
technology. We estimate the equation using trade in manufactures among the
OECD. The parameter estimates allow us to simulate the model to investigate the
role of trade in spreading the benefits of innovation and to examine the effects of
lower trade barriers. Typically foreigners benefit by only a tenth as much as the innovating
country, but in some cases the benefits to close neighbors approach
those of the innovator.
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