Abstract
We investigate the impact of trade on artificial intelligence (AI) innovation by compiling a unique dataset for India. Our findings reveal that exports significantly increase AI patenting, even when accounting for lagged exports and alternative instruments. To explain this empirically observed relationship, we develop a spatial growth model that examines how trade influences the spatial distribution of AI innovation. In our framework, regions with higher levels of trade openness, particularly through export activities, are better positioned to benefit from advances in information and communication technology (ICT). These advancements, in turn, serve as catalysts for data accumulation and AI innovation. We then apply this model to our data to explore how reductions in trade costs affect innovation across different regions in India.