United States Foreign Investment and the Technological Gap

Abstract

Much has been written, in recent years, about the technological gap between Europe and the United States, and its significance in influencing the rate and structure of economic growth of the two regions.¹ The extent and character of the gap have been variously evaluated,² but one index of technological usage now commanding increasing attention is the export competitiveness of Europe and the United States in technologically advanced products. Several studies have shown that there is a strong positive correlation between the level and share of world trade of particular manufactured products accounted for by the United States and their research and development content.³ But it has also been observed that such an advantage may more reflect the Americans’ comparative ability to innovate new products than their efficiency in manufacturing these products once innovated;⁴ and that where this is the case, over time, unless there are continuing dynamic scale economies in the innovating country, or a complete blockage in the transmission of knowledge,⁵ production will gradually spread to countries where production and marketing conditions are the most favourable.