How Does Invention Relate to the Residual ? A Study of International Patenting Macro

I examine the dynamic relationship between patenting, total factor productivity and openness to trade for a sample of twelve OECD countries from 1978 to 2004. Applying a technology-industry concordance to sort patents by sector, I study the sectoral shifts within countries throughout this period using a mathematical decomposition from international trade theory, constant market share analysis. I …nd that while invention is positively correlated with productivity, growth in invention is not correlated with productivity growth in any sector. Openness to trade is negatively correlated with patenting. Larger, more highly productive and more open countries are better able to set and maintain international trends, while these countries are less able to switch out of stagnant patenting sectors.