ABSTRACT
The objective of this chapter is to focus on the implicit role of technological innovations in facilitating and generating trade among the nations of the world. Although it was obvious that the invention of steam engine, textile machines etc. led to rapid economic growth in the UK with the consequent expansion of international trade, technological innovation was not at the core of theoretical paradigms in classical economics. The Ricardian model, which perfunctorily captures international differences in technology, was followed by the Heckscher-Ohlin-Samuelson (HOS) model which abstracts from technological differences altogether and which dominated trade theory from the 1950s until the early 1980s. It will be argued that in reality technological innovation plays a tacit and unrecognised role here too. It was the advent of the neo-technology theory that provided a hiatus, after which the current models of endogenous innovation and international trade begin to give technological innovation the prime role that it deserved all along. We begin with a discussion of the various forms in which technological innovations may take place in the first section. We then proceed to present a historical sketch of international trade in the second section. The third section critically examines how classical economists emphasised capital accumulation, but neglected the important role of technological innovation. In the fourth and fifth sections, we argue how technological innovation silently, but in an empirically relevant way, plays an important role in the earlier trade models of the 1960s and 1970s, and discuss how the more recent new trade models put technological innovation at the heart of economic growth and international trade.
