Melitz (2003) demonstrates that greater trade openness raises industry productivity via a selection effect and via a production re-allocation effect. Our comment points out that the set-up assumed in the Melitz model displays a trade off between static and dynamic efficiency gains. That is, although freer trade improves industry productivity in a level sense, it harms it in a growth sense. To make this point as simply as possible, we introduce a slight modification to the model that endogenises the growth rate of industry productivity and we show that liberalization slows growth.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
4634.
Find related papers by JEL classification: H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
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