International trade and innovation: delving in Latin American commerce

Purpose: The purpose of this paper is to compare and contrast the international trade characteristics of commerce between Latin American countries and some of the top economies in the world, in order to identify new business opportunities for LATAM firms in dynamical external markets. Design/methodology/approach: A triple indexed gravity model, correcting with robust standardized errors clustered, and a panel data analysis was used to obtain the relationship between Latin American countries and advanced and other emerging economies. Findings: The main finding of this paper is that innovation overcomes gravity effects and parameters typical of a knowledge society are the significant ones to explain trade among different regions. The model that includes an innovation proxy accommodates with the new international theories of trade. Besides, communication capacity is essential to reach consumers abroad with newer and more complex products. Moreover, the constant is significant when innovation is included, which may imply intersectoral trade that behaves relatively stable in bilateral trade. Practical implications: The findings suggest that the economies that have some relevance in trade, have increasing numbers regarding patents. Thus, the empirical findings relate to the theoretical models which state that comparative advantages may be dynamic due to technological innovation. Originality/value: This paper shows that innovation is a central parameter to engage in intratrade and develop a knowledge-based economy. Latin America sometimes appears to be a puzzle as to how to improve its economic performance and overcome its social and economic problems. Intratrade seems to be the route to increase Latin American business participation in world trade.