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Trade, innovation and productivity

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  • Aranzazu Crespo Rodríguez

    ()
    (Universidad Carlos III de Madrid)

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    Abstract

    Empirical evidence shows that trade liberalization improves pro- ductivity not just because of a selection e ect but also because of productivity gains within rms. This paper proposes a model that allows for both channels, by adding the option to innovate to a trade model. In contrast to the existing literature, the process innovation is modeled as a continuous variable and there is both a xed and a variable cost to innovate. The interaction between the innovation and export choices is key to understand the di erent equilibria in the open economy and the outcomes following a trade liberalization. I calibrate the model to match the Spanish economy and explore the consequences of di erent trade policies. Simulations reveal that a trade policy that enhances innovation does not necessarily induce larger productivity gains.

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    Bibliographic Info

    Paper provided by Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales in its series Working Papers with number 2012-06.

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    Date of creation: 07 Jun 2012
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    Handle: RePEc:imd:wpaper:wp2012-06

    Note: This paper is included in the IMDEA Social Sciences Working Paper Series through the Bank of Spain Excellence Programme
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    Keywords: process innovation; firm heterogeneity; trade policy;

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    1. Antonio Navas-Ruiz & Davide Sala, 2007. "Technology adoption and the selection effect of trade," Economics Working Papers we076737, Universidad Carlos III, Departamento de Economía.
    2. Edward J. Balistreri & Russell H. Hillberry & Thomas F. Rutherford, 2008. "Structural Estimation and Solution of International Trade Models with Heterogeneous Firms," Department of Economics - Working Papers Series 1056, The University of Melbourne.
    3. Paula Bustos, 2009. "Trade Liberalization, Exports and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinean Firms," 2009 Meeting Papers 1029, Society for Economic Dynamics.
    4. Rasmus Lentz & Dale T. Mortensen, 2005. "An Empirical Model of Growth Through Product Innovation," NBER Working Papers 11546, National Bureau of Economic Research, Inc.
    5. Bee Yan Aw & Mark J. Roberts & Daniel Yi Xu, 2008. "R&D Investments, Exporting, and the Evolution of Firm Productivity," American Economic Review, American Economic Association, vol. 98(2), pages 451-56, May.
    6. Pavcnik, Nina, 2002. "Trade Liberalization, Exit, and Productivity Improvement: Evidence from Chilean Plants," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 245-76, January.
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