econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 19 May 2017

Does Trading With The U.S. Make The World Smarter?

from the St Louis Fed

-- this post authored by Ana Maria Santacreu

International technology diffusion determines how fast the world’s technology frontier may grow in the future. It helps explain convergence in income per capita across countries.

Channels for Spreading Ideas

Empirical studies have found that international trade of goods and services helps spread ideas around the world.1

International trade could be a direct channel of technology diffusion if, by importing intermediate products from different exporters, the importer benefits from the technology or ideas embodied in those products.

For instance, a firm that imports a machine from a more innovative country may learn from the technology embodied in the production of such machine and may start producing with better technologies.

International trade could also be an indirect channel of technology diffusion. When countries establish bilateral trade relationships, a new form of technology diffusion arises. Through the trade network, importers can learn from new technologies developed by foreign suppliers and vice versa.

More Trade, More Ideas

Therefore, country-pairs that trade more with each other may experience more technology diffusion through both the direct and indirect channels of trade.

One way to determine the strength of the indirect channel is by looking at bilateral royalty payments, or receipts between two countries. Royalty payments represent payments made to the owner of a patent.2

When a domestic firm pays to use a foreign patent, there is diffusion of ideas since the firm is using the technology developed abroad. For that to happen, the domestic firm needs to know about it, of course, which could be facilitated through international trade relations.

The U.S.’s Role in Sharing Ideas

The U.S. is one of the most innovative countries in the world, based on its research and development (R&D) intensity (calculated as R&D expenditures as a percentage of GDP). Hence, it has the potential to be an important source of technology diffusion.

Countries that trade a lot with the U.S. may experience larger flows of ideas through both the direct and indirect channels of trade. Here I focus on how trade may facilitate flows of ideas through the indirect channel. That is, how does establishing a trading relationship with the U.S. help a country know about ideas?

Royalty Payments

When using royalties as an indicator of diffusion, we find that royalty payments received by American firms from foreign firms (i.e., royalty receipts in the U.S.) are larger than those that the U.S. pays to foreign firms to use their ideas (i.e., royalty payments in the U.S.). That is, the U.S. is a net sender of technologies to the rest of the world, for which it receives royalties.

Furthermore, we find a positive relationship between how much a country trades with the U.S. and royalty payments from each country to the U.S. and royalty payments from the U.S. to each of its trading partners.

The figures below show how royalty payments from the U.S. to its trading partners (and royalty receipts by the U.S. from its trading partners) are related to the total volume of bilateral trade.

royalties to US

royalties by US

The evidence suggests that the stronger the trade relationship between the U.S. and its trading partners is, the stronger the flow of ideas between them. In turn, this suggests a stronger potential for the U.S. to diffuse technologies to other countries or receive technologies from those countries.

Notes and References

1 Other channels include multinational activity through which parent companies transfer knowledge to its affiliates in other countries, human capital or migration.

2 See Santacreu, Ana Maria. “Trading Ideas between Countries." Federal Reserve Bank of St. Louis, On the Economy Blog, April 17, 2017. Also see Santacreu, Ana Maria. “Royalty Payments and the Incentives to Conduct Research and Development." Federal Reserve Bank of St. Louis, FRED Blog, April 17, 2017.

Additional Resources

Source

https://www.stlouisfed.org/on-the-economy/2017/may/trading-us-world-smarter

Disclaimer

Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.




Econintersect Contributors








search_box
Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.







Keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government





























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved