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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

    Related research

    Keywords: International trade; knowledge spillovers; firm size; misallocation;

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    References

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    2. Keller, Wolfgang, 2002. " Trade and the Transmission of Technology," Journal of Economic Growth, Springer, vol. 7(1), pages 5-24, March.
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    13. Francisco J. Buera & Joseph Kaboski & Yongseok Shin, 2009. "Finance and Development: A Tale of Two Sectors," NBER Working Papers 14914, National Bureau of Economic Research, Inc.
    14. Banerjee, Abhijit V. & Duflo, Esther, 2005. "Growth Theory through the Lens of Development Economics," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 7, pages 473-552 Elsevier.
    15. Lumenga-Neso, Olivier & Olarreaga, Marcelo & Schiff, Maurice, 2005. "On `indirect' trade-related R&D spillovers," European Economic Review, Elsevier, vol. 49(7), pages 1785-1798, October.
    16. Madsen, Jakob B., 2007. "Technology spillover through trade and TFP convergence: 135 years of evidence for the OECD countries," Journal of International Economics, Elsevier, vol. 72(2), pages 464-480, July.
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    18. Vincenzo Verardi & Christophe Croux, 2009. "Robust regression in Stata," Stata Journal, StataCorp LP, vol. 9(3), pages 439-453, September.
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