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Neoclassical growth theories viewed capital accumulation as the main
endogenous source of output expansion and regarded technological
progress as exogenous. In more recent studies, however, innovation both
feeds on the stock of knowledge derived from cumulative R&D
experience and also contributes to it. In Discussion Paper No. 840, David
Coe and Research Fellow Elhanan Helpman develop a model of
international trade in goods and services, with foreign direct
investment and international exchange of knowledge. A country's
productivity depends on its own R&D efforts and those of its trading
partners. Its own R&D produces traded and non-traded goods and
services that allow it to make better use of its existing resources and
thus raise productivity; it also enhances its ability to benefit from
foreign technical advances. These provide both the direct benefits of
learning about new technologies and materials, production processes or
organizational methods, and indirect benefits emanating from imports of
goods and services developed by trading partners, both of which can
raise domestic productivity. |