The Impacts of innovation and standards on trade of measurement and testing products: Empirical results of Switzerland's bilateral trade flows with Germany, France and the UK

Nowadays, the impact of the measurement and testing infrastructure on economic performance and trade is theoretically and even politically widely accepted. However, there are no empirical studies on this issue. The purpose of this paper is to elucidate the impact of innovation capacity and technical standards as one important part of the measurement and testing infrastructure on international trade flows and competitiveness. In order to focus on the direct causlity between innnovative technology and measurement and testing standards and the respective market, the empirical analysis concentrates on the trade of measurement and testing products of a country witha top position in measurement and testing technology. In its empirical analysis of Switzerland's trade flows with Germany, France and the UK, the paper follows the approach of the pionneering paper of Swann et al. (EconomicJournal 106 (19996) 1297), who integrated for the first time technical standards as a technology indicator in the estimation of UK trade performance. The trade flows in measurement and testing products from 1980 until 1995 are explained by both indicator for innovative capcity and for the degree of standardisation. The first indicator is based on the patent applications at the European patent office. The later uses the stocks of technical standards in the countries differented by their regional scope. Four different trade equations are analysed, besides an export and an import function, the trade balance and the intra-industry trade. The results clearly show that both Switzerland's innovative capacity and its stocks of standards are able to explain its export performance in the three countries. Secondly, especially the stocks of international standards in Switzerland have a positive impact on imports into Switzerland from the three countries, confirming their positive role for fostering trae in general. Thirdly, Switherland's export surplus concerning the three trade partners is positively affected by the stock on international standards in Switzerland, which seem to be an important factor for international competitiveness. Finally, the results of the intra-industry model underline the common view of the general trade-fostering effect of even national standards in the case of the trade with the three countries.