The theory of induced innovation

For a review of empirical evidence and the critique, see Binswanger, Ruttan (1978), Thirtle, Ruttan (1987) and Ruttan (1997). In particular, the assumption of the innovation possibility function was criticised. 

The relationship between local induced innovation and the international competitiveness of nations has rarely been discussed as yet (Ruttan 1997). If relative factor prices vary internationally, trade would be low since each country employs a local specific technological design matching local factor price relationships. Yet, induced innovation theory offers a mechanism for the international diffusion of innovation designs. In section 3.1 it will be theoretically shown that a country can become a lead market that anticipates global factor price trends, i.e. experiences factor price changes earlier than other countries.  

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Fetiner, W. Two propositions in the theory of induced innovations. Economic founialji (1961), 305-8. 

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