Impacts of research and development on manufacturing trade*1

The basic aim of the research is to investigate the impacts of research and development (R&D) on manufacturing trade. Six hypotheses are tested. The focus is on possible non-linear effect of R&D on trade flows and whether R&D helps overcome the distance and the role of level of economic development on manufacturing trade. The panel unit root test and panel econometric methods are employed on the adapted gravity trade model using the panel data for Organisation for Economic Cooperation and Development (OECD) countries during the period 1995-2003. The results of the research indicate that R&D is positively associated with manufacturing trade for exporting countries, while results are mixed for importing countries. The results reject the non-linear relationship between R&D and manufacturing exports. Estimations suggest that R&D may contribute to overcoming the effects of distance on manufacturing exports and may strengthen import specialization. R&D is found as the way to foster exports of manufacturing products from developing to developed OECD countries.