Innovation, trade, and economic welfare: Contrasts between petrochemicals and semiconductors

Since the early 1980s, the corpus of international trade theory has been broadened to include new theories of international trade based on “special assumptions”. While these models are often highly specific, they are starting to yield outcomes that appear to be more general, and which comport with what industry analysts report is going on in international markets, especially for manufactured goods. Further progress can be made if these models are able to take into account intellectual property and firm organization. This paper suggests how such factors impact policy analysis.