82. Jonathan Eaton and Samuel Kortum

A Rising Tide Raises All Ships: Trade and Diffusion as Conduits of Growth
June 1996

Abstract

Measures of innovative activity show it to be concentrated in a small number of countries. Yet the benefits of innovation are experienced broadly. International trade is one conduit through which the benefits of innovation in one country can flow abroad. Technological diffusion is another. In this paper we develop a model of technology and trade to explore these alternatives. An implication of the model is that increased trade will itself affect observed productivity as well as real wages. We analyse data on trade, research, and productivity from five major industiral economies in light of the model. Trade alone can explain observed cross-sectional patterns of innovation and productivity quite well. Nonetheless, trade fails to explain why productivity growth is as high in countries where less inventive activity occurs. An implication is that diffusion rather than trade is responsible for the similarity in growth rates across major industrial countries.

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