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Equilibrium Technology Diffusion, Trade, and Growth

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  • Jesse Perla
  • Christopher Tonetti
  • Michael E. Waugh

Abstract

We study how opening to trade affects economic growth in a model where heterogeneous firms can adopt new technologies already in use by other firms in their home country. We characterize the growth rate using a summary statistic of the profit distribution: the mean-min ratio. Opening to trade increases the profit spread through increased export opportunities and foreign competition, induces more rapid technology adoption, and generates faster growth. Quantitatively, these forces produce large welfare gains from trade by increasing an inefficiently low rate of technology adoption and economic growth.

Suggested Citation

  • Jesse Perla & Christopher Tonetti & Michael E. Waugh, 2021. "Equilibrium Technology Diffusion, Trade, and Growth," American Economic Review, American Economic Association, vol. 111(1), pages 73-128, January.
    • Handle: RePEc:aea:aecrev:v:111:y:2021:i:1:p:73-128
    DOI: 10.1257/aer.20151645
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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