THE ROLE OF INNOVATION IN BILATERAL OECD TRADE PERFORMANCE

This paper tests an empirical model of the determinants of bilateral O ECD trade, with particular emphasis on the role of innovation. Variati on in the relationship across countries and sectors is analysed; two i nnovation proxies and actual data on innovations are used. A positive relationship is found between relative innovation and bilateral trade performance at an aggregate level, and for a number of manufacturing s ectors. Sectors are also categorized as either net users or producers of innovations; differences in innovation appear to have more of an im pact on trade performance for the net producers of innovations than th e net users of innovations.