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Trade Policy and Innovation

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Author Info
Huasheng Song
Hylke Vandenbussche

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Abstract

This paper develops a model where firms across countries differ in their capacity to innovate. Our main goal is to study firm level innovation under various trade policy shocks. We consider two countries where firms across countries are heterogeneous in their innovation efficiencies. We find that the benefits of trade liberalization and trade protection differ across firms. One of the main results we obtain is that trade protection hurts the productivity of highly efficient firms while it increases the productivity of lowly efficient firms. The predictions of our model are in line with recent empirical evidence that while trade protection fosters the productivity of lowly efficient firms, it reduces productivity of highly efficient firms.

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File URL: http://www.econ.kuleuven.ac.be/licos/DP/DP2008/DP200.pdf
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Publisher Info
Paper provided by LICOS - Centre for Institutions and Economic Performance, K.U.Leuven in its series LICOS Discussion Papers with number 20008.

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Date of creation: 2008
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Handle: RePEc:lic:licosd:20008

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Related research
Keywords: Trade Policy Innovation Exports

Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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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. Fadinger, Harald & Fleiss, Pablo, 2008. "Trade and Sectoral Productivity," MPRA Paper 6938, University Library of Munich, Germany. [Downloadable!]
  2. Xiwang Gao & Kaz Miyagiwa, 2005. "Antidumping protection and R&D competition," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 211-227, February. [Downloadable!] (restricted)
  3. Thomas J. Prusa, 2001. "On the spread and impact of anti-dumping," Canadian Journal of Economics, Canadian Economics Association, vol. 34(3), pages 591-611, August. [Downloadable!] (restricted)
  4. Svetlana Demidova & Andrés Rodríguez-Clare, 2007. "Trade Policy under Firm-Level Heterogeneity in a Small Economy," NBER Working Papers 13688, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Maurizio Zanardi, 2004. "Anti-dumping: What are the Numbers to Discuss at Doha?," The World Economy, Blackwell Publishing, vol. 27(3), pages 403-433, 03. [Downloadable!] (restricted)
  6. Ederington, Josh & McCalman, Phillip, 2008. "Endogenous firm heterogeneity and the dynamics of trade liberalization," Journal of International Economics, Elsevier, vol. 74(2), pages 422-440, March. [Downloadable!] (restricted)
  7. Anderson, Simon P. & Schmitt, Nicolas & Thisse, Jacques-Francois, 1995. "Who benefits from antidumping legislation?," Journal of International Economics, Elsevier, vol. 38(3-4), pages 321-337, May. [Downloadable!] (restricted)
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  8. Hylke Vandenbussche & Maurizio Zanardi, 2008. "What explains the proliferation of antidumping laws?," Economic Policy, CEPR, CES, MSH, vol. 23, pages 93-138, 01. [Downloadable!] (restricted)
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  9. Konings, Jozef & Vandenbussche, Hylke, 2008. "Heterogeneous Responses of Firms to Trade Protection," CEPR Discussion Papers 6724, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  10. Belleflamme, Paul, 2001. "Oligopolistic competition, IT use for product differentiation and the productivity paradox," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 227-248, January. [Downloadable!] (restricted)
  11. Leonard K. Cheng & Larry D. Qiu & Kit Pong Wong, 2001. "Anti-dumping measures as a tool of protectionism: A mechanism design approach," Canadian Journal of Economics, Canadian Economics Association, vol. 34(3), pages 639-660, August. [Downloadable!] (restricted)
  12. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: An Inverted-U Relationship," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 701-728, May.
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