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Quality heterogeneity and global economic growth

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  • Dinopoulos, Elias
  • Unel, Bulent

Abstract

This paper develops a fully endogenous, variety-expansion growth model with firm-specific quality heterogeneity, limit pricing, and an endogenous distribution of markups. Firms with high-quality products engage in exporting, firms with intermediate-quality products serve the domestic market, and inefficient firms with low-quality products exit the market. Trade liberalization, measured by a reduction in trade costs or a decline in foreign market entry costs, generates a reallocation of resources from low-quality to high-quality products and exit of inefficient firms. However, it has ambiguous effects on the average global quality level, long-run growth, and welfare. An increase in the rate of population growth or in the intensity of trade-related knowledge spillovers accelerates economic growth. The laissez-faire equilibrium is inefficient, and this leaves room for welfare-improving government intervention.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 55 (2011)
Issue (Month): 5 (June)
Pages: 595-612

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Handle: RePEc:eee:eecrev:v:55:y:2011:i:5:p:595-612

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Web page: http://www.elsevier.com/locate/eer

Related research

Keywords: International trade Economic growth Firm heterogeneity Product quality R&D Trade costs Trade liberalization;

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References

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  1. Sofronis Clerides & Saul Lach & James Tybout, 1996. "Is "Learning-by-Exporting" Important? Micro-Dynamic Evidence from Colombia, Mexico and Morocco," NBER Working Papers 5715, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Wolf-Heimo Grieben & Fuat Sener, 2012. "North-South Trade, Unemployment and Growth: What’s the Role of Labor Unions?," Working Paper Series of the Department of Economics, University of Konstanz 2012-06, Department of Economics, University of Konstanz.
  2. Dinopoulos, Elias & Unel, Bulent, 2013. "A simple model of quality heterogeneity and international trade," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(1), pages 68-83.
  3. Naito, Takumi, 2012. "A Ricardian model of trade and growth with endogenous trade status," Journal of International Economics, Elsevier, Elsevier, vol. 87(1), pages 80-88.
  4. Andreas Hoefele, 2013. "The Skill Content of Offshoring and Growth," Discussion Paper Series 2013_12, Department of Economics, Loughborough University, revised Oct 2013.
  5. katsufumi, fukuda, 2012. "Gains and Losses from International Trade in a Knowledge-driven Semi-endogenous Growth Model with Heterogeneous Firms," MPRA Paper 40818, University Library of Munich, Germany, revised 22 Aug 2012.
  6. Colin Davis & Ken-ichi Hashimoto, 2014. "Industry Concentration, Knowledge Diffusion, and Economic Growth Without Scale Effects," Discussion Papers 1408, Graduate School of Economics, Kobe University.
  7. Katsufumi Fukuda, 2013. "The Effect of Globalization in a Semi Endogenous Growth Model with Firm Heterogeneity, Endogenous International Spillover, and Trade," Discussion Paper Series, Research Institute for Economics & Business Administration, Kobe University DP2013-21, Research Institute for Economics & Business Administration, Kobe University.
  8. Julian Emami Namini, 2009. "International Trade with Firm Heterogeneity in Factor Shares," Tinbergen Institute Discussion Papers 09-020/1, Tinbergen Institute.
  9. Tanaka, Hitoshi & Iwaisako, Tatsuro, 2014. "Intellectual property rights and foreign direct investment: A welfare analysis," European Economic Review, Elsevier, Elsevier, vol. 67(C), pages 107-124.
  10. Emami Namini, Julian, 2014. "The short and long-run impact of globalization if firms differ in factor input ratios," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 38(C), pages 37-64.
  11. Borota, Teodora, 2012. "Innovation and imitation in a model of North–South trade," Journal of International Economics, Elsevier, Elsevier, vol. 87(2), pages 365-376.

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