Jonathan Eaton

A Rising Tide Raises All Ships: Trade and Diffusion as Conduits of Growth

Measures of innovative activity show it to be concentrated in a small number of countries. Yet the benefits of innovation are experienced broadly. International trade is one conduit through which the benefits of innovation in one country can flow abroad. Technological diffusion is another. In this paper we develop a model of technology and trade to explore these alternatives. An implication of the model is that increased trade will itself affect observed productivity as well as real wages. We analyse data on trade, research, and productivity from five major industiral economies in light of the model. Trade alone can explain observed cross-sectional patterns of innovation and productivity quite well. Nonetheless, trade fails to explain why productivity growth is as high in countries where less inventive activity occurs. An implication is that diffusion rather than trade is responsible for the similarity in growth rates across major industrial countries.

Italy and the European crisis: panel discussion

The Crisis of 2008/2009 brutally ruptured a fault line that had separated northern European countries and countries to the east, south and west. The trade deficits of the not-north of Europe rapidly reversed. This reversal came hand in hand with drastic increases in unemployment. The norths pre-crisis trade surpluses continued into the post-crisis era with Europe as a whole replacing China as the largest surplus bloc in the world. Unemployment in the north has also largely returned to pre-crisis levels. This fissure between the two parts of the continent exposed serious contradictions in the financial architecture of Europe. Some are design flaws fixable within the existing institutional framework and are being addressed. But these fixes cannot overcome the harm imposed by stretching a currency union over what remains a very diverse and disconnected continent. But while Italy was on the wrong side of the fissure, a closer look at the data reveals that it was not among the most critically wounded. Rather the crisis exacerbated problems that had been simmering in Italy for some time.

Chapter 3 Patents and Information Diffusion

Patent data have been exploited to track invention and international technology diffusion. We review evidence on research activity, international patenting, and income differences across countries. Guided by that evidence, we construct a model of ideas in the world economy that includes the decision of whether and where to patent them. The model makes precise connections between international patent statistics and cross-country differences in innovation, technology diffusion, market size, and strength of patent protection. We use it to organize our discussion of existing empirical studies, which typically focus on one of five core relationships: (i) national pools of knowledge and international spillovers from basic research; (ii) aggregate productivity and international technology diffusion from applied research; (iii) international patenting and the production of ideas, international diffusion, market sizes, and intellectual property regimes; (iv) the value of ideas and diffusion, market sizes, and the intellectual property regimes; or (v) investment in research and research productivity, the cost of research, and the value of ideas. While distinguishing between these five relationships proves useful, they are, of course, logically intertwined. Taking these interconnections into account will contribute to the goal of building a quantitative model of the creation, diffusion, and adoption of ideas in the global economy.