The role of innovation in bilateral OECD trade performance

This paper tests an empirical model of the determinants of bilateral OECD trade, with particular emphasis on the role of innovation. Variation in the relationship across countries and sectors is analysed; two innovation proxies and actual data on innovations are used. A positive relationship is found between relative innovation and bilateral trade performance at an aggregate level, and for a number of manufacturing sectors. Sectors are also categorized as either net users or producers of innovations; differences in innovation appear to have more of an impact on trade performance for the net producers of innovations than the net users of innovations.