Technology Upgrading, Exporting and Heterogeneous Firms
AbstractEmpirical 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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Bibliographic InfoPaper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2010:16.
Length: 30 pages
Date of creation: 26 Oct 2010
Date of revision:
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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
Web page: http://www.ne.su.se/
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International Trade; Upgrading; Trade Liberalization;
Find related papers by JEL classification:
- F10 - International Economics - - Trade - - - General
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
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