Working Paper: NBER ID: w29629
Authors: Nelson Lind; Natalia Ramondo
Abstract: We develop a Ricardian model of trade in which countries innovate ideas that diffuse across the globe. In this model, the forces of innovation and diffusion combine to shape trade substitution patterns. Innovation makes a country technologically distinct, reducing their substitutability with other countries, while diffusion between countries generates technological similarity and increases head-to-head competition. In the special case of an innovation-only model where countries do not share ideas, productivities are independent across space, and the demand system is CES. As a consequence, departures from CES expenditure reveal diffusion patterns. Our theoretical results provide a mapping between the dynamics of observable trade flows and the dynamics of innovation and knowledge diffusion.
Keywords: No keywords provided
JEL Codes: F10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| innovation (O35) | technological distinctiveness (O33) |
| technological distinctiveness (O33) | substitutability (L15) |
| diffusion (F22) | technological similarity (O33) |
| technological similarity (O33) | competition (L13) |
| innovation (O35) | trade patterns (F10) |
| diffusion (F22) | trade patterns (F10) |
| correlation in productivity due to diffusion (O49) | substitutability in demand (D11) |
| correlation in productivity due to innovation (O49) | elasticities of substitution (D11) |