Can Social Norms Affect the International Allocation of Innovation?

Abstract

If economic agents coordinate on social norms more oriented towards the protection of national industries, an asymmetric international specialization in the research and development (R&D) arises even in a tariff free world with no a priori differences across countries in endowments, demography or technology. This paper exploits the indifference in the composition of R&D expenditure across sectors of the typical multi-sector Schumpeterian framework (forward-looking decisions, CRS R&D technology and free entry) to construct a theory of the international allocation of innovation and education based on sunspot equilibrium. A role for industrial policies as mere coordination devices emerges in an international Schumpeterian framework. The implications for the relationships between inequality and growth are examined.Schumpeterian Growth Theory, Inequality, International Trade, Social Norms, Indeterminacy, Sunspots.