The impacts of innovations and standards on trade of measurement and testing products: empirical results of Switzerland's bilateral trade flows with Germany, France and the UK

Nowadays, the impact of the measurement and testing infrastructure on econo mic performance and trade is theoretically and even politically widely acce pted. However, there are no empirical studies on this issue. The purpose of this paper is to elucidate the impact of innovative capacity and technical standards as one important part of the measurement and testing infrastruct ure on international trade flows and competitiveness. In order to focus on the direct causality between innovative technology and measurement and test ing standards and the respective market, the empirical analysis concentrate s on the trade of measurement and testing products of a country with a top position in measurement and testing technology. In its empirical analysis o f Switzerland's trade flows with Germany, France and the UK, the paper foll ows the approach of the pioneering paper of Swann et al. (Economic Journal 106 (1996) 1297), who integrated for the first time technical standards as a technology indicator in the estimation of UK trade performance. The trade flows in measurement and testing products from 1980 until 1995 are explain ed by both an indicator for innovative capacity and for the degree of stand ardisation. The first indicator is based on the patent applications at the European patent office. The latter uses the stocks of technical standards i n the countries differentiated by their regional scope. Four different trad e equations are analysed, besides an export and an import function, the tra de balance and the intra-industry trade. The results clearly show that both Switzerland's innovative capacity and its stocks of standards are able to explain its export performance in the three countries. Secondly, especially the stocks of international standards in Switzerland have a positive impac t on imports into Switzerland from the three countries, confirming their po sitive role for fostering trade in general. Thirdly, Switzerland's export s urplus concerning the three tirade partners is positively affected by the s tocks of international standards in Switzerland, which seem to be an import ant factor for international competitiveness. Finally, the results of the i ntra-industry model underline the common view of the general trade-fosterin g effect of even national standards in the case of the trade with the three countries. (C) 2001 Elsevier Science B.V. All rights reserved.