Seminar

Innovation, Diffusion and Trade: Theory and Measurement

Ana Maria Santacreu (INSEAD)

October 5, 2009, 17:00–18:30

Toulouse

Room MF 323

Political Economy Seminar

Abstract

In the last decade, some countries in Asia and Europe grew much faster than average, and experienced a significant increase in the variety of goods that they import. A well known stylized fact in development is the existence of a positive correlation between trade and growth across countries. However, the mechanisms by which these two variables are connected are not well understood. I propose a general equilibrium model of innovation and international diffusion to analyse these connections. Technological progress in driven by the invention of new goods, which diffuse internationally through trade. The model is analysed outside the steady state, to capture differences in growth rates across countries. Using disaggregated trade data, and data on R&D, and output growth, I estimate the parameters of innovation and diffusion with Bayesian techniques. Finally, I carry out counterfactual analysis to examine the connections between trade and growth by changing various exogenous parameters. A 10% permanent decrease in the barriers to technology adoption in Asia increases world growth rates by 0.4%. In the transition, Asia imports and grows faster than the rest of the world. A 10% permanent increase in the innovation productivity in Asia increases world growth rates by 0.7%. The higher productivity in Asia increases the demand of imports by this region by 6%. Either change leads simultaneously to both higher growth and more trade.