ABSTRACT
This chapter continues the discussion of the Schumpeterian model.The Schumpeterian model describes innovation and the applicationof new ideas as the result of deliberate effort that requires the use of scarce, and thus costly, resources. The rate of technological progress depends on the expected eventual rewards from innovation relative to the costs of innovation. These rewards and costs, in turn, depend on the size of the market for innovations, the availability of resources needed to generate innovations, the productivity with which societies generate innovations, and how societies are willing to allocate resources between present consumption and innovative activities. This chapter focuses on the role of international trade in the Schumpeterian model. Specifically, the model will reveal how international trade affects the size of the market for innovations, the availability of resources needed to generate innovations, the productivity with which societies generate innovations, and how societies are willing to allocate resources between present consumption and innovative activities.
