Science and Technology in United States Foreign Trade

Abstract

Economists generally believe that modern science-technology, such as the presence of scientists and engineers or research and development, is a central factor in the comparative advantage of advanced industrial nations. However, most discussion of this topic rests on cross-industry regressions, which (Leamer and Bowen, I981 ) do not provide a valid indication of factor abundance, so the overall role of science still remains to be established. In addition, much remains to be known about the role of different facets of science and innovation in the process of generating comparative advantage. There are two fundamentally different ways of understanding technological differences between countries. One point of view, adopted in the standard neoclassical theory of international trade, assumes all countries are on the same production function. Under these circumstances, relative factor abundance determines the factor services which a country exports or imports. Within this perspective, one can make progress towards an understanding of the role of science and technology in international trade by dividing science into many highly specific narrowly defined input factors. Calculations can then determine the relative abundance of those inputs associated with science-technology, versus other input factors, in a given country or the relative abundance of different elements within the broad area of overall science-technology. Quite another procedure assumes there are substantial differences in the production possibilities faced by different countries. For example, Krugman (I979) recently argued that advantages in innovation and lags in the diffusion of knowledge are the basic influences which permit incomes to be higher in the industrialised world than in developing nations. This view illustrates the potential economic significance of innovation in advanced countries, since the generation of new technologies in industrialised countries and their diffusion to the rest of the world then essentially determines world income distribution and world economic development. However, empirical implementation of the diffusion viewpoint requires data for many countries, which greatly limits the number of facets of technology which can be considered. Since the present paper is centrally concerned with the effect which a wide variety of technological elements has on international trade, we choose to select a framework within which the ample data available on different aspects of technology in the United States can be utilised. The first view of technological