Intellectual property, technological advantage and trade performance of UK manufacturing industries

The technological advantage of advanced countries is often cited as a potential source of comparative advantage in world trade, although with international mobility of capital this may not be sufficient to retain domestic production. Net trade volumes for a panel of UK manufacturing industries are investigated using two measures of industry-specific technological advantage, one absolute (innovations) and one relative (patents). It is demonstrated that the determining factors of UK manufacturing trade performance do include technological advantage. An all-manufacturing estimate of trade determination is derived which could be of use in forecasting, by pooling industry level data. However it is shown that using a single data panel makes it difficult to produce a statistically acceptable equation because the underlying industry parameters vary considerably across the panel. Separate technology sub-group estimates of the impact of innovation on net trade volumes are also derived which are more statistically acceptable. The intellectual property system (in the form of patents) is most significant in protecting sectors with mature technology. In high technology sectors it is the bringing to market of an innovation which sustains trade performance in the short to medium run, and even this advantage is eroded in the long run. In three sectors in which world trade is dominated by multi-nationals (metal goods, motor vehicles and aerospace) technological advantage was not effective in supporting UK net trade.