Working Paper Revision

Knowledge Diffusion, Trade and Innovation across Countries and Sectors

Abstract: We provide a unified framework for quantifying the cross country and cross-sector interactions among trade, innovation, and knowledge diffusion. We study the effect of trade liberalization in a multi-country, multi-sector endogenous growth model in which comparative advantage and the stock of knowledge are determined by innovation and diffusion. A reduction in trade costs induces a re-allocation of comparative advantage in production and innovation across sectors, which translates into higher growth along the counterfactual balanced growth path (BGP). Heterogeneous knowledge diffusion across country-sectors amplifies the specialization effects of trade-induced R&D re-allocation, becoming an additional source of growth and welfare.

Keywords: Knowledge spillovers; R&D; international trade; sectoral linkages;

JEL Classification: F12; O33; O41; O47;

Status: Published in American Economic Journal: Macroeconomics

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Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2019-11-18

Number: 2017-29

Note: Publisher DOI: 10.1257/mac.20200084

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