Premium
Technology and the dynamics of comparative advantage
Author(s) -
Navas Antonio
Publication year - 2018
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12309
Subject(s) - openness to experience , comparative advantage , economics , convergence (economics) , divergence (linguistics) , total factor productivity , free trade , international economics , intra industry trade , product innovation , international trade , disadvantage , product (mathematics) , trade barrier , industrial organization , productivity , macroeconomics , social psychology , psychology , linguistics , philosophy , geometry , mathematics , political science , law
This paper explores how trade affects innovation in a two‐country, two‐good, two‐factor Heckscher–Ohlin model with heterogeneous firms. Trade openness induces an increase in process innovation in both industries. The increase is stronger in the comparative advantage industry. Trade openness boosts prospective entrants' profits in that industry, which leads to further increases in product innovation. Trade liberalization generates a different relative impact on innovation across industries, depending on trade costs. When they are high (low), it increases process innovation relatively more in the comparative advantage (disadvantage) industry, leading to TFP divergence (convergence) across industries.