The Self-Limiting Nature of Innovation - In Brief
Published December 1, 2010 | December 2010 issue
A trade mirage
- Economists have long thought that international trade—beneficial in many respects—might have the “extra benefit” of stimulating innovation by exporting firms, and thereby fueling productivity and overall economic growth.
- Recent research suggests, however, that such benefits are negligible or nonexistent at themacroeconomic level.While trade does appear to stimulate improvements in production methods (process innovation) by exporting firms, it also diminishes product innovation by smaller companies primarily serving domestic markets.
- The net result: little or no gain in overall productivity due to increases in exporters‘ innovative activity, and therefore no “extra” increase in economic well-being from international trade.