R&D, International Production and Trade: The Technological Gap Theory in a Factor-Endowment Model.

The technological gap theory of international trade is examined in a simple model where R&D requires the input of skilled labor, which may also be employed in production, and where enterprises' endogenous technology builds upon a Heckscher-Ohlin free exogenous technology. Intercountry differences in the level of R&D arise because of intercountry differences in the absolute endowment of skilled labor and/or the efficiency of factors. Moreover, these differences lead to more than proportionate differences in the level of R&D and this magnifying effect is due to the role of the exogenous technology. Some implications of the findings for empirical analyses of the technological gap and human skills theories are also considered. Copyright 1988 by Blackwell Publishers Ltd and The Victoria University of Manchester