The effect of innovation on trade flows in OECD countries: Panel Gravity Model

In the study, the effects of innovation studies applied in OECD countries on the trade flows of the countries were examined. In this context, using the data of OECD countries in the period of 1996-2016, the effects of innovations in determining the trade flows of the countries were analyzed with the panel gravity model. When the results obtained in the study are analyzed, it is concluded that there is a positive relationship between the countries' GDP and trade flows. It was observed that there is a positive and significant relationship between R&D expenditures and trade flows included in the model as an indicator of innovation. It is concluded that there is a negative relationship between the variable, which is one of the main variables of the gravity model and which expresses the geographical distance between countries, and trade flows in accordance with the literature. It has been observed that there is a positive relationship between country population and real exchange rate and trade performance in line with expectations. In addition, the coefficient values of the variables added to the model as puppets were also in line with expectations. While there is a positive relationship between variables such as membership in economic integrations, ownership of common border and trade flows, it is concluded that there is a negative relationship between 2008 global crisis and trade flows that affect all world economies. When all the findings are evaluated together, it is concluded that innovation studies in OECD countries positively affect trade flows. This result reveals the importance of technology investments. Policy makers should increase their innovation investments in order to increase the welfare level of the society, to reach a level that can compete in world trade and to have a sustainable economic growth.