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Productivity Improvements and Falling Trade Costs: Boon or Bane?

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Author Info
Demidova, Svetlana (Pennsylvania State University)
Abstract

This paper 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 heterogeneous firms and technological asymmetries. Contrary to received wisdom, and for reasons unrelated to adverse terms of trade effects, we show that there is good reason to expect improvements in a partner's productivity to hurt us. Moreover, falling trade costs can raise welfare in the technologically advanced country while reducing it in the backward one if it is backward enough.

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Paper provided by Pennsylvania State University, Department of Economics in its series Working Papers with number 2-05-1.

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Date of creation: Feb 2005
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Handle: RePEc:ecl:peneco:2-05-1

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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. 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)
  3. 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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