Trade, knowledge accumulation and diffusion: A sectoral perspective

Abstract

Theoretical and empirical research on the relationship between trade and knowledge accumulation suggests at least two causal links: one stresses the role of knowledge accumulation in determining trade performance and competitiveness, the other looks at the role of trade in enhancing knowledge accumulation through imports. This paper tries to capture both elements in a unified perspective. We examine the properties of a dynamic disequilibrium model focused on trade specialization and knowledge accumulation. The sectoral breakdown, which includes four export and two import sectors, follows Pavitt's (Research Policy 13, 343–375, 1984) taxonomy, which is particularly appropriate for dealing with empirical analyses of the relationship between innovation activities and production and export performance. Steady state analysis shows that under perfectly balanced growth international diffusion of knowledge is irrelevant for growth. Unbalanced growth implies changes in the specialization structure. The ambivalent effect of the expansion of foreign knowledge on domestic knowledge accumulation, trade, and growth performance implies that imports of knowledge-intensive goods may not lead to higher growth unless this results in sufficiently strong trade performance in the knowledge-intensive sectors. Parameter estimates have been obtained for Germany, France, Italy, the UK, and Japan. Results appear to be consistent with theoretical expectations about the importance of `price' and `non-price' determinants of trade performance in the four macrosectors; they also indicate relevant country differences in the process of knowledge accumulation and different degrees of exposure to international knowledge diffusion. Simulation exercises confirm steady state results on the relevance of country differences in trade specialization and in domestic knowledge accumulation in affecting growth, and they also clarify the relationship between growth and changes in the structure of trade specialization.