The Impact of Technological Opportunity on the Dynamics of Trade Performance*

The paper explores firstly the impact of technological change on trade growth at the country level, using trade statistics and statistics on patenting activity in the US, across 20 countries for 17 manufacturing sectors. Secondly, using structural decomposition analysis, the paper examines statistically, whether the degree to which countries get access to sectors with above average growth in technological opportunity has any impact on growth in aggregate market shares of exports. The results demonstrate that there is a positive relationship between change in trade performance and change in technological capabilities across countries for 8 ‘technology intensive’ sectors over the period 1965-1988. Furthermore, the relationship between the degree to which countries get access to sectors with above average growth in technological opportunity and growth in aggregate market shares is investigated. In this context, it is shown that there is a positive relationship between trade performance and the individual ‘national innovation system’s’ ability to actively move into technological sectors offering above average technological opportunity. JEL Classification: C13, C21, F14, F43, O31