Empirical analysis of innovation and trade in Europe: a gravity model approach
by Konstantin Kunze
International Journal of Trade and Global Markets (IJTGM), Vol. 9, No. 3, 2016

Abstract: This paper examines the relationship between innovation and trade in Europe. Applying the gravity model R&D expenditures and patent counts, both subdivided into sectors have been used as proxies for innovation. The results imply that innovation is a significant determinant for imports and exports; however, this relationship is not significant in every sector. Furthermore, the results suggest that innovation-output, captured by the number of patents, is associated with bigger effects on trade than innovation-input, in the form of R&D expenditures. The robustness tests indicate that endogeneity does not bias the results.

Online publication date: Sun, 17-Jul-2016

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