The Importance of Technology Based Inter-sectoral Linkages for Market Share Dynamics

This paper introduces inter-sectoral technology-based linkages (or technological spillovers) in a empirical model of international market share dynamics. The Pavitt taxonomy is applied as a yardstick for interpreting the empirical results. In accordance with the criteria behind the taxonomy, we find upstream linkages to be more important for the determination of market shares in scale intensive and supplier dominated sectors, while downstream linkages are particularly important for specialised suppliers. We also find investment to be more important for scale intensive types of sectors, formal R&D for science based sectors, and costs for supplier dominated sectors. The results highlight that the relative importance of different sources of competitiveness differs across sectors and thus reconcile the differences in emphasis in relation to the role of technology in determining trade flows, between (a) a tradition that stresses the importance of knowledge developed in a particular sector, and (b) the so-called ‘home market hypothesis’, that points out how inter-sectoral linkages within a particular country determine trade flows from that country.