(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)
The Uruguay Round of multilateral trade negotiations, which began in the mid-1980s and culminated in the 1994 Marrakesh Declaration, slashed tariffs by 40 percent in the 124 developed and developing countries that participated. This round of trade liberalization thus fostered increased trade flows globally—and, more importantly, created an ecosystem that enabled greater innovation.
Knowledge, the base ingredient for innovators, is bundled up in the products and services we trade. By eliminating price-distorting tariffs, countries give their business and citizens access to more diverse goods at lower prices, and thereby increase the stock of knowledge available to innovators everywhere.
To analyze the impact of trade liberalization on innovation, University of Oslo economists Federica Coelli, Andreas Moxnes, and Karen Helene Ulltveit-Moe analyzed 1.5 million patents that 72,000 firms filed in 60 countries from 1992 to 2000. The researchers found that over this period, the number of patents filed increased by 45 percent globally, and they attribute 3 percentage points of that 45 percent increase to the innovation-spurring effects of tariff reductions.
Even with an ever expanding pool of clear economic evidence that trade liberalization boosts innovation and productivity, bipartisan and public skepticism over trade’s benefits has been simmering as of late. To understand the dynamics of that distrust, watch a recording of ITIF’s recent event, “What’s Needed to Restore Faith in Trade and Globalization?”