Knowledge Diffusion, Trade and Innovation across Countries and Sectors

RePEc Short ID: psa547
ORCID iD: 0000-0002-3788-4511

Cai, Jie; Li, Nan; Santacreu, Ana Maria

doi:10.20955/wp.2017.029

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 an endogenous growth model in which comparative advantage and the stock of knowledge are determined by innovation and diffusion. We calibrate the model to match observed cross-country and cross-sector heterogeneity in production, innovation efficiency and knowledge spillovers. Our counterfactual analysis shows that a reduction in trade costs induces a re-allocation of R&D and comparative advantage across sectors. Heterogeneous knowledge diffusion, as estimated empirically, amplify the specialization effects of trade-induced R&D re-allocation, becoming an important source of growth and welfare.

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

JEL Classification: F12; O33; O41; O47;

https://doi.org/10.20955/wp.2017.029

Status: Published in American Economic Journal: Macroeconomics