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Productivity Improvements and Falling Trade Costs: Boon or Bane?

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Demidova, Svetlana (Pennsylvania State University)

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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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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. R. Dornbusch & S. Fischer & P. A. Samuelson, 1976. "Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods," Working papers 178, Massachusetts Institute of Technology (MIT), Department of Economics.
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  2. Richard E. Baldwin & Rikard Forslid, 2006. "Trade Liberalization with Heterogenous Firms," NBER Working Papers 12192, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Helpman, Elhanan & Melitz, Marc J & Yeaple, Stephen R, 2003. "Export versus FDI," CEPR Discussion Papers 3741, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," NBER Working Papers 11393, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2004. "Comparative Advantage and Heterogeneous Firms," NBER Working Papers 10668, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Fabio Ghironi & Marc J. Melitz, 2004. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," NBER Working Papers 10540, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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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. Toshihiro Okubo, 2009. "Firm heterogeneity and Ricardian comparative advantage within and across sectors," Economic Theory, Springer, vol. 38(3), pages 533-559, March. [Downloadable!] (restricted)
  3. Baldwin, Richard & Harrigan, James, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," CEPR Discussion Papers 6368, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Jang Ping Thia, 2008. "Why Capital does not Migrate to the South: A New Economic Geography Perspective," CEP Discussion Papers dp0895, Centre for Economic Performance, LSE. [Downloadable!]
  5. 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)
  6. 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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