Innovation and Competitiveness: Trends in Unit Prices in Global Trade

This paper seeks to build on theory, to develop new methods for understanding the nature and basis of sectoral and national competitive advantage, and to do so with a temporal perspective. Neo-Schumpeterian and evolutionary economics perspectives (which place innovation at the forefront of accumulation) highlight the importance of economic rents, barriers to entry and core competencies. There is no one measure that adequately reflects these barriers to entry, and much of the research has been concerned to generate proxies, each of which is in itself partial, but which together provide a comprehensive picture. During the late 1970s, preliminary work was undertaken on the unit price of UK trade as an indicator of relative technological competence. However, this approach has largely been neglected since then, receiving only sporadic attention in US literature, and at high levels of product aggregation. This paper utilizes this approach to try and reflect the dynamic process of shifting competitive advantage in the global economy. Its distinctive feature is the level of detail-six-digit trade classifications-and its breadth of coverage, being applied to seven sets of sectoral classifications involving more than 12 000 product groups. The data set relates to EU imports of manufactured goods between 1988 and 2001. It concludes that there is a strong correlation between unit price performance and innovation intensity, and provides data to show that low-income economies tend to be located in low-innovation niches in sectoral groupings. This has important implications for the conventional wisdom that high incomes will result from a specialization in manufactures.