The r & d factor in international trade and international investment of United States industries

Abstract

IN THE last ten or fifteen years, the field of international trade theory has been in continuous ferment.' The received doctrine drawn from the mainstream of Smith-Ricardo-Mill-MarshallHeckscher-Ohlin has been re-examined from many different angles. Sometimes, there have been strongly revisionist reactions, such as those encountered in the economic development area.2 In other contexts, the emphasis has been mainly on the further testing and refinement of the doctrine of comparative advantage and the role of factor endowments. Much of the discussion of U.S. trade performance in recent years has taken for granted the main premises of classical and neoclassical theory. A considerable part of the debate over the interpretation of the Leontief paradox and much of the discussion of the implications of other recent empirical work have concentrated on questions of national factor endowments, or the response of national production functions to different factor prices, or other issues readily compatible with the classical theoretical structure. Leontief, for instance, was inclined to his familiar paradox by asserting that skilled labor may be relatively cheap in the U.S. economy. Nonetheless, one can also detect an echo of the discontent voiced so effectively by Williams in 1929, a discontent based on the view that classical doctrine is not structured to deal efficiently with the trade implications of a number of forces that may be of major consequence in any descriptive and analytical work (see Hoffmeyer, 1958; MacDougall, 1957; Linder, 1961; Kindleberger, 1962). For the most part, the literature of dissent seems to have sprung out of efforts to explain the foreign trade patterns of the United States, especially the country's exports of manufactured goods. U.S. labor, it has been observed, is higher priced than labor abroad, to an extent which greatly exceeds any productivity differences (Kreinin, 1965). To be sure, U.S. capital is cheaper and less tightly rationed. But the effective interest rate for major industrial borrowers only differs by a few percentage points among the advanced countries. This difference hardly seems enough to explain the strength and persistence of U.S. exports in manufactured products. From capital and labor cost considerations, therefore, attention has turned to questions of innovation, of scale, of leads * Gruber's contribution to this work was financed by a grant from the M.I.T. Center for Space Research funded by NASA, while the work of Mehta and Vernon was financed by a grant from the Ford Foundation to the Harvard Business School for the study of multinational enterprise and nation states. Calculations were done at the M.I.T. Computation Center.