Barriers to trade and innovation

An important aspect in the relationship between innovation and trade is the role of strategic protection. Countries that innovate the most may have a stronger incentive to maximize the gains from innovation, also in foreign markets, through their exporting firms. As a result, they may appear more active in fighting anti-competitive behavior and barriers to trade raised by other countries. The latter can be done in global trade arenas, such as within the World Trade Organization (WTO), whose member countries can raise formal “concerns” against Technical Barriers to Trade (TBT) possibly affecting their firms. Indeed, TBTs generally impose technical requirements on exporting firms, and, thus, they raise the fixed costs they have to incur when exporting, thus distorting or restricting trade. While one may expect countries that raise more TBT concerns to be more negatively affected by anti-competitive behavior from other countries and, thus, to innovate less as a result of trade restrictions and missed market opportunities, strategic protection incentives may yield a positive relationship between innovation and TBT concerns when these are raised toward countries that present relevant market opportunities for the innovative exporters. In this chapter, we include an overview of the role of strategic protection in the context of innovation and trade, and we analyze in more detail the relationship between innovation (as measured by patenting activities) and TBTs, as relatively little evidence exists on this specific channel of the trade-innovation link.