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Productivity Improvements And Falling Trade Costs: Boon Or Bane?

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Svetlana Demidova

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Abstract

This article looks at two features of globalization, namely, productivity improvements and falling trade costs, and explores their effect on welfare in a monopolistic competition model with heterogenous firms and technological asymmetries. Contrary to received wisdom, and for reasons different from adverse terms of trade effects, it is shown that improvements in a partner's productivity must hurt us. Moreover, falling trade costs can raise welfare in the technologically advanced country while reducing it in the backward one, if technological asymmetries are large enough. Copyright © (2008) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-2354.2008.00517.x
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Publisher Info
Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 49 (2008)
Issue (Month): 4 (November)
Pages: 1437-1462
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Handle: RePEc:ier:iecrev:v:49:y:2008:i:4:p:1437-1462

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  1. R. Dornbusch & S. Fischer & P. A. Samuelson, 1976. "Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods," Working papers 178, Massachusetts Institute of Technology (MIT), Department of Economics.
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  2. Richard E. Baldwin & Rikard Forslid, 2006. "Trade Liberalization with Heterogenous Firms," NBER Working Papers 12192, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Helpman, Elhanan & Melitz, Marc J & Yeaple, Stephen R, 2003. "Export versus FDI," CEPR Discussion Papers 3741, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," NBER Working Papers 11393, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2004. "Comparative Advantage and Heterogeneous Firms," NBER Working Papers 10668, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Fabio Ghironi & Marc J. Melitz, 2004. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," NBER Working Papers 10540, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  1. Richard E. Baldwin & Frédéric Robert-Nicoud, 2006. "Trade and Growth with Heterogeneous Firms," CEP Discussion Papers dp0727, Centre for Economic Performance, LSE. [Downloadable!]
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  2. Toshihiro Okubo, 2009. "Firm heterogeneity and Ricardian comparative advantage within and across sectors," Economic Theory, Springer, vol. 38(3), pages 533-559, March. [Downloadable!] (restricted)
  3. Baldwin, Richard & Harrigan, James, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," CEPR Discussion Papers 6368, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Jang Ping Thia, 2008. "Why Capital does not Migrate to the South: A New Economic Geography Perspective," CEP Discussion Papers dp0895, Centre for Economic Performance, LSE. [Downloadable!]
  5. Svetlana Demidova & Hiau Looi Kee & Kala Krishna, 2006. "Do Trade Policy Differences Induce Sorting? Theory and Evidence from Bangladeshi Apparel Exporters," NBER Working Papers 12725, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Svetlana Demidova & Kala Krishna, 2007. "Trade and Trade Policy with Differentiated Products: A Chamberlinian-Ricardian Model: A Comment," NBER Working Papers 12949, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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