Innovation, product quality, variety, and trade performance: an empirical analysis of Germany and the UK

Using the framework of the new trade and endogenous growth theories, this paper finds that factors such as innovation and product quality-proxied by variables such as relative R&D and patenting activity-help to explain the determination of import volumes for both Germany and the UK. The econometric work makes an original contribution to this area of research by using bilateral import volume data disaggregated to the four-digit ISIC level.