{'fraction_non_alphanumeric': 0.018838304552590265, 'fraction_numerical': 0.007849293563579277, 'mean_word_length': 5.7105263157894735, 'pattern_counts': {'":': 0, '<': 0, '<?xml version=': 0, '>': 0, 'https://': 0, 'lorem ipsum': 0, 'www.': 0, 'xml': 0}, 'pii_count': 0, 'substrings_counts': 0, 'word_list_counts': {'cursed_substrings.json': 0, 'profanity_word_list.json': 0, 'sexual_word_list.json': 0, 'zh_pornsignals.json': 0}}
International Trade and Firm's Technological Choice

This paper analyzes the impact of international trade on a firm’s technological choice. Specifically, we examine how income and technological levels of export destination countries affect exporting firms’ relative incentives between product innovation and process innovation. Based on an illustrative model of vertical product differentiation, this paper suggests that bilateral trade between countries of different income levels tends to weaken the incentive for product innovation for both countries, relative to the autarky case. In addition, other things being equal, trade with countries whose income levels are relatively higher further reduces exporters’ incentive for product innovation, unless technology gap between trade partners is sufficiently large. Using the firm-level data for Korean manufacturing for the period of 2005-07, we find that there exists an inverted U-shaped relationship between trading partner’s income level and the R&D expenditure share on new product innovation. Our estimation results indicate that the relative incentive to invest in new product innovation tends to increase until the income level of the major trading partner reaches at 5,260 US dollars, then it decreases afterward.