Innovation, Diffusion, and Trade: Theory and Measurement

Growth and imports are correlated across countries, but the mechanisms underlying this relationship are not well understood. I develop a multi-country model in which imports and growth are endogenous variables connected by technological innovations and their international diffusion through trade. Fitting the model to data on innovation, productivity, and trade in varieties, I find that most of the growth-imports correlation is explained by these two mechanisms. I also find that the adoption channel has been particularly important in developing countries, accounting for about three-fourths of their growth. Finally, I run counterfactuals analysis, in which exogenous shocks such as a decrease in trade barriers or a decrease in adoption barriers induce a positive correlation between growth and impor