INFER Workshop on Integration and Globalization: Challenges for Developed and Developing Countries location:University of Coimbra date:29-30 June 2007
Technological innovation affects the value and direction of trade. Revealed comparative advantage should therefore not be studied in a multilateral approach, but rather bilaterally. This paper first calculates the patterns of bilateral comparative advantage for a group of 11 European countries. Secondly it looks into the determinants of these patterns, taking into account country-specific and sector-specific effects. Our findings show that technological innovation, and in particular R&D expenditures have a large, positive impact on a nation’s comparative advantage in a bilateral context.