Working Paper: NBER ID: w25071
Authors: Nelson Lind; Natalia Ramondo
Abstract: We review a recent body of theoretical literature that links the creation and diffusion of knowledge and technology to openness. We analyze two channels through which the spread of new ideas occurs: international trade and the activity of multinational firms (multinational production). The unifying theme of our survey is methodological. We focus on quantitative general equilibrium models that treat productivities as Fréchet random variables—as in the model of trade in Eaton and Kortum (2002) (EK). We present models in the literature that extend the EK model of trade to innovation, diffusion, and multinational firms, and examine the implications for counterfactuals related to the gains from trade. We finalize with new directions for research.
Keywords: Innovation; Knowledge Diffusion; Globalization; Trade; Multinational Firms
JEL Codes: F10; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| greater openness to trade (F19) | higher income levels (D31) |
| greater openness to trade (F19) | faster growth rates in economies (O49) |
| foreign direct investment (FDI) (F23) | enhances productivity of domestic firms (F23) |
| international technology diffusion (O33) | contributes significantly to productivity growth in OECD countries (O49) |
| openness to trade (F10) | influences adoption rates of new technologies (O33) |
| trade (F19) | productivity (O49) |