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Trade, Technology Diffusion and Misallocation: Trade Partner Matters (Replaces CentER DP 2011-125)

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  • Curuk, M.

    (Tilburg University, Center for Economic Research)

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    Abstract

    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 the interaction between technology diffusion induced by trade and cross sectoral heterogeneity in productivity distributions, and technology adoption rates leads to asymmetric pro-competitive effects, which in turn result in misallocation. In this framework trade increases welfare in the long-run due to technology diffusion, even though there is steadystate resource misallocation across industries. Using firm level data from 32 European countries for the period of 1992-2007, 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 2012-046.

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    Date of creation: 2012
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    Handle: RePEc:dgr:kubcen:2012046

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    Related research

    Keywords: International trade; Technology diffusion; Firm size distribution; Misallocation;

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    1. Rachel Griffith & Stephen Redding & John Van Reenen, 2000. "Mapping the two faces of R&D: productivity growth in a panel of OECD industries," IFS Working Papers W00/02, Institute for Fiscal Studies.
    2. Alcala, Francisco & Ciccone, Antonio, 2001. "Trade and Productivity," CEPR Discussion Papers 3095, C.E.P.R. Discussion Papers.
    3. repec:att:wimass:9620 is not listed on IDEAS
    4. Keller, Wolfgang, 2002. " Trade and the Transmission of Technology," Journal of Economic Growth, Springer, vol. 7(1), pages 5-24, March.
    5. Laura Alfaro & Andrew Charlton & Fabio Kanczuk, 2009. "Plant-Size Distribution and Cross-Country Income Differences," NBER Chapters, in: NBER International Seminar on Macroeconomics 2008, pages 243-272 National Bureau of Economic Research, Inc.
    6. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," NBER Working Papers 11393, National Bureau of Economic Research, Inc.
    7. Chang, Tai Hsieh & Peter, J- Klenow, 2007. "Misallocation and manufacturing TFP in China and India," MPRA Paper 35084, University Library of Munich, Germany, revised 15 Jun 2007.
    8. 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.
    9. Paolo Epifani & Gino Gancia, 2010. "Trade, markup heterogeneity and misallocations," IEW - Working Papers 469, Institute for Empirical Research in Economics - University of Zurich.
    10. Hyeok Jeong & Robert M. Townsend, 2005. "Sources of TFP Growth: Occupational Choice and Financial Deepening," IEPR Working Papers 05.28, Institute of Economic Policy Research (IEPR), revised May 2005.
    11. van de Klundert, Theo & Smulders, Sjak, 1996. "North-South knowledge spillovers and competition: convergence versus divergence," Journal of Development Economics, Elsevier, vol. 50(2), pages 213-232, August.
    12. Behrens, Kristian & Murata, Yasusada, 2007. "General equilibrium models of monopolistic competition: A new approach," Journal of Economic Theory, Elsevier, vol. 136(1), pages 776-787, September.
    13. Abhijit V. Banerjee & Benjamin Moll, 2010. "Why Does Misallocation Persist?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 189-206, January.
    14. 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.
    15. Vincenzo Verardi & Christophe Croux, 2009. "Robust regression in Stata," Stata Journal, StataCorp LP, vol. 9(3), pages 439-453, September.
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