American Economic Review: Insights
ISSN 2640-205X (Print) | ISSN 2640-2068 (Online)
Global Innovation and Knowledge Diffusion
American Economic Review: Insights
vol. 5,
no. 4, December 2023
(pp. 494–510)
Abstract
We develop a Ricardian model of trade where countries innovate ideas that diffuse globally. Our key result provides necessary and sufficient conditions for innovation and diffusion to generate max-stable Fréchet productivity, linking generalized extreme value expenditure to knowledge flows. Innovation makes a country technologically distinct, reducing its substitutability with other countries. In contrast, diffusion generates technological similarity, increasing head-to-head competition and substitutability. In an innovation-only model where countries do not share ideas, productivities are independent across countries and expenditure is CES. Consequently, departures from CES reveal diffusion patterns.Citation
Lind, Nelson, and Natalia Ramondo. 2023. "Global Innovation and Knowledge Diffusion." American Economic Review: Insights 5 (4): 494–510. DOI: 10.1257/aeri.20220384Additional Materials
JEL Classification
- F11 Neoclassical Models of Trade
- O31 Innovation and Invention: Processes and Incentives
- O33 Technological Change: Choices and Consequences; Diffusion Processes
- O41 One, Two, and Multisector Growth Models