The International Computer Industry

Innovation and Comparative Advantage

by Alvin J. Harman

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Prior to their recent awareness of the "technology gap," economists usually treated technology as equally available in all nations. This report defines "new" industries as those in which technology is limited — such as the computer industry — and a comparative advantage is gained by the nation with the most innovative firms. A model is hypothesized embodying the cumulative value of a firm's innovations in the characteristics of its product. Products are marketed internationally, with each firm facing a demand curve with finite price elasticity. Analyses of firms in the computer industry provide insights into returns from R&D activities as well as into the extent of competition. For example, demand analysis shows that U.S. firms face stiffer competition at home than abroad, and technical supremacy may have little to do with commercial success. When an industry is no longer limited technologically, it becomes "standard," and comparative advantage depends on other factors of production. (Also published by Harvard University Press, 1971. Available only from booksellers or the publisher.)

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