The Role of Innovation and Opportunity in Bilateral OECD Trade Performance

This paper investigates the specialization pattern of countries in terms of technology and exports and examines the role of innovation intensity and technological opportunity in determining bilateral trade at the aggregate and sectoral level. Some of the major ndings are as follows: At the aggregate level, innovation intensity and technological opportunity has positive and signi cant impact on bilateral trade performance especially during the 1990s. At the sectoral level, innovation intensity a ects bilateral trade performance positively mainly in the high-technology sectors. There is also a positive and signi cant relationship between technological opportunity and bilateral trade for ve out of the eighteen sectors, which are the high-technology sectors. An indirect policy implication is that creation of a national innovation system is extremely desirable for economies that are trying to specialize in the high-technology sectors. 1The authors are extremely grateful to Alan Isaac and Kevin Carey for helpful comments. The remaining errors are solely ours. 2Please address all correspondence to Prabuddha Sanyal. postal address: 123 Scott St, Baltimore, MD 21201, email: prabuddha sanyal @hotmail.com.