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The Effects of International Trade on Resource Misallocation: Trade Partner Matters (Replaced by CentER DP 2012-046)

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  • Curuk, M.

    (Tilburg University, Center for Economic Research)

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    Abstract

    This paper suggests that contingent on the productivity level of the trade partner; international trade may create resource misallocation in less productive countries. It theoretically shows how productivity spillovers induced by trade with more productive countries and heterogeneity in pro- ductivity distributions across sectors lead to asymmetric pro-competitive effects, which in turn result in misallocation. It also presents robust empirical evidence supporting the model predictions by showing that trade with more productive regions as a share of purchasing power parity (PPP) GDP (1) increases economy wide markup variation, (2) raises mean sectoral productivity, and (3) decreases productivity dispersion within 4-digit sectors, only in less productive countries.

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    Bibliographic Info

    Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2011-125.

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    Date of creation: 2011
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    Handle: RePEc:dgr:kubcen:2011125

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    Web page: http://center.uvt.nl

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