Abstract:
The relationship between technology and international competitiveness dates back to the neo-technological trade theories of the 1960s. This approach considers difference in technology as the primary motive for difference among nations in terms of trade performance. The technology gap approach emphasizes inter-country differences in innovativeness as the basis for international trade flows. The gravity equation is the most successful and celebrated empirical model in international Trade. The empirical gravity literature does not include any form of multilateral resistance in the analysis. The importance of using fixed effects to control for country-specific characteristics has been emphasized in an influential paper by Anderson & Van Wincoop (2003). This paper investigates the effect of innovation on international trade. It examines the impact of R&D as a proxy of innovation on three medium high-tech industries exports in Iran, Japan, Korea and Australia using panel data method over a period of 10 years. We incorporate an industry-specific intercept into the model for estimating the role of innovation in explaining industry-level trade across selected countries. Our findings show that innovation has a positive and economically large effect on export performance of all industries. This suggests innovation is a central driver of trade.
Machine summary:
The contribution of the paper is to develop a dynamic gravity model by extending on Olivero & Yotov (2010) to allow industries to have different intercepts and thus differing trade volumes.
So we incorporate an industry-specific intercept into the model for estimating the role of innovation in explaining industry-level trade across selected countries, as suggested by Funk et al.
Section 3 explains methodology and the gravity model we use to estimate the effect of innovation on international trade at the industry-level.
Marquez & Zarzoso (2010) analyzed the effect of technological innovation on sectoral export using a gravity model of trade.
Equation (1) is the structural dynamic gravity equation, an expression for bilateral trade flows (xij) as a function of the same contemporaneous variables as in the static model, as well as the lagged values of bilateral trade, trade costs and multilateral resistances, world output and output in the origination region: {مراجعه شود به فایل جدول الحاقی} Where , is trade flow from country i to country j at time t, two countries’ GDPs, denoted by and .
The above specification of the gravity model aggregated trade flows over countries, but we disaggregate data into 3 medium-high technology industries.
Estimation results are reported in the 36/ The Effect of Innovation on International Trade: Selected… first column of Table 3.
Table 4: The Effect of Innovation on International Trade for each industry {مراجعه شود به فایل جدول الحاقی} Notes: * indicate significance at 5%.
OECD Science, Technology and Industry Scoreboard 44/ The Effect of Innovation on International Trade: Selected… 2003.