Trade and the impact of innovations and standards: the case of Germany and the UK

Abstract

The effects of patents as indicators for innovations and standards on German trade performance are analysed in general and German–British trade in detail. The latter analysis goes a step further than the approach of Swann et al. (1996) and is based on a broader and more detailed database. The results show that Germany's export performance can primarily be explained by its innovative capacity and only to a small extent by its strength in standards. Furthermore, the results underscore the common view of the trade-fostering effect of international standards, while ‘idiosyncratic' standards have ambiguous effects on exports.

Notes

 Some of the empirical results can be found in Blind (2004, chapter 17.6).

 See Appendix for the description of the data.

 The data also contain technical rules published by sectoral standardization bodies.

 As indicator in the regression analysis the relative patent share RPS is used, which is defined as:

This index measures whether the annual share of patent application of a country p corresponds in a certain ICS classified group i to the share which this sector holds in its total worldwide population, i.e. all the applications at the European Patent Office, or whether this share is above or below average. The logarithm ensures a symmetrical range around the neutral point 0, the tangens hyperbolicus leads to a limitation of the range ±100. This approach is applied e.g. by Wakelin (1998). Compared to the flow of applications, the stocks of granted patents would be more adequate, but due to very long and heterogeneous granting procedures they cannot be determined with a reasonable effort.

 At first glance, it could be argued that the stocks of standards are endogenous and positively influenced by the development of trade flows. However, the development of standards is a very complex process, coordinating the preferences of various interest groups. Consequently, the time span between proposing a new standardization process and the final publication of a standard could last more than five years–at least in the past and in case of controversial international standards. In addition, standardization is primarily driven by technological change which has an impact on trade, but again only with a significant time lag.

 Source: OECD (1998a, 1998b).

 Because of re-unification the price indexes refer first of all to the ‘old federal states' and from 1993 to the whole of the Federal Republic. Cf. on the price indexes the Federal Office of Statistics, Series 17 (various years) and the OECD on the dollar exchange rates (OECD, 1997b).

 Cf. OECD (1997a).

 Cf. Deutsche Bundesbank (1996, p. 74) on the external value of the DM.

 A more exact indicator for the development of demand is the value added in the manufacturing industry of the OECD countries. As this is not available, the more comprehensive indicator of the gross domestic product is applied.

 Because of unavailable data, the German stock of standards cannot be compared with the worldwide stock of standards.

 In Table 3 and the following tables the logarithmic variables are given as lower-case letters. Furthermore, RSS stands for the sum of squared residuals.

 The export surplus equation is theoretically the difference between the export and the import equation. However, the parameter ρ differs between both equations, so that the identity is not quite given.

 The export and import price indexes cannot be taken into consideration, because they are not available for bilateral trade relations. At the same time, the real exchange rates have proved to be insignificant in the bilateral estimations. This may be based on the fact that the development of the DM against the British pound was subject to relatively short-term fluctuations and the long-term development was relatively well anticipated and could be hedged by corresponding contracts.

 The gross value added was taken from the OECD (1997b).

 In the following panel estimates, various versions were tested to determine whether restrictions with regard to the symmetrical effects of national and international standards or with regard to the opposite effects of domestic and foreign standards are statistically admissible.