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Technology Upgrading, Exporting and Heterogeneous Firms

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Author Info

  • Ferguson, Shon

    ()
    (Dept. of Economics, Stockholm University)

Abstract

Empirical evidence shows that R&D spending is highly correlated with firm productivity, highly concentrated among large firms, and responsive to trade liberalization. This paper develops a model of product upgrading with heterogeneous firms that captures these characteristics by allowing firms to choose their optimal level of fixed cost spending from a continuum. The endogenous component of fixed costs is assumed to represent R&D or product development that is spent once but reaps demand benefits over all the markets the firm serves. This mechanism encourages firms to export and capture economies of scale in fixed cost spending. The model makes two new predictions. The first prediction is that exporters upgrade while domestic firms cut costs when trade liberalizes. The second prediction is that the selection effect of trade liberalization is weaker in industries characterized by intense upgrading competition between firms.

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File URL: http://www2.ne.su.se/paper/wp10_16.pdf
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Bibliographic Info

Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2010:16.

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Length: 30 pages
Date of creation: 26 Oct 2010
Date of revision:
Handle: RePEc:hhs:sunrpe:2010_0016

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Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden
Phone: +46 8 16 20 00
Fax: +46 8 16 14 25
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Web page: http://www.ne.su.se/
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Related research

Keywords: International Trade; Upgrading; Trade Liberalization;

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Cited by:
  1. Juan A. Máñez & María E. Rochina-Barrachina & Juan A. Sanchis-Llopis & Oscar Vicente, 2013. "Financial constraints and Spanish manufacturing firms’ R&D and exporting," Working Papers 1324, Department of Applied Economics II, Universidad de Valencia.

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