Knowledge, Product Differentiation and Trade

Abstract: The purpose of this thesis is to analyze the influence of knowledge on the export performance of firms in different regions. More specifically, this study focuses on the impact of knowledge on the structure of regional export flows, in terms of horizontal and vertical product differentiation, as well as the geographical distribution of export flows. The thesis consists of four separate papers, which contribute to the overall analysis of knowledge, product differentiation and international trade in different ways. The second chapter presents a study of the effects of regional accessibility to R&D on the diversity of export flows with regard to goods, firms and destination markets. Chapter 3 provides an empirical analysis of vertical product differentiation, i.e. differentiation in terms of product quality, and examines the impact of educated labor and R&D on regional comparative advantages in goods of relatively high product quality. Chapter 4 contains a study of how the regional endowment of highly educated workers affects the structure of export flows, i.e. how the endowment of educated workers impacts on the number of product varieties exported, the average price per variety and the average quantity shipped out. The final chapter presents a micro-level analysis of firms’ propensity to participate in international markets and their propensity to expand export activities by introducing new export products or establishing export links with new destination countries.In summary, the empirical results of this thesis convey the message that regional accessibility to knowledge, embodied in highly educated labor and/or developed through R&D activities, plays a fundamental role in shaping the content and structure of regional export flows. More specifically, the present empirical observations suggest that the regional endowment of knowledge stimulates the size of the export base in terms of exporting firms and number of product varieties. The recurring significance of the accessibility variables in explaining spatial export patterns show that the knowledge endowment of a region must be defined in such ways that it captures sources of potential knowledge spillovers from inside as well as outside its own regional boundaries. This outcome shows that regional variations in knowledge endowments originate both in the actual spatial distribution of a nation’s knowledge labor across regions, and in regional differences in the geographical accessibility to internal and external knowledge labor.