“Technology Cycle, Knowledge Capital and Comparative Advantage”

Xiaoping Chen, Nanyang Technological University

Yuchen Shao, Nanjing University

We investigate another source of comparative advantage that originates from the knowledge capital endowment and heterogeneous technology cycle across industries. Technology cycle is measured as the period between a new patent and the earliest patent it cites. A short technology cycle means that technology evolves quickly in that industry and old technology can be easily substituted by new ones. The return of doing R&D in such industries is usually more uncertain. We connect this industry heterogeneity in technology cycle with the country-level knowledge capital endowment to investigate its effect on comparative advantage and trade. We find that countries with less knowledge capital endowment tend to export more in industries with longer technology cycles. Whereas countries with more knowledge capital tend to export more in industries with shorter technology cycles. Additionally, this comparative advantage is mitigated when the industry R&D intensity increases, in which case the standard comparative advantage originates from the matching between country-level knowledge capital endowment and industry R&D intensity dominates.