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The Impact of Trade on Intraindustry Reallocation and Aggregate Industry Productivity: A Comment

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  • Richard E. Baldwin
  • Frederic Robert-Nicoud

Abstract

Melitz (2003) demonstrates that greater trade openness raises industry productivity via a selection effect and via a production re-allocation effect. Our comment points out that the set-up assumed in the Melitz model displays a trade off between static and dynamic efficiency gains. That is, although freer trade improves industry productivity in a level sense, it harms it in a growth sense. To make this point as simply as possible, we introduce a slight modification to the model that endogenises the growth rate of industry productivity and we show that liberalisation slows growth.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10718.

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Date of creation: Aug 2004
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Handle: RePEc:nbr:nberwo:10718

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  1. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jenson & Samuel Kortum, 2000. "Plants and Productivity in International Trade," NBER Working Papers 7688, National Bureau of Economic Research, Inc.
  2. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers, Princeton, Department of Economics - Financial Research Center 91, Princeton, Department of Economics - Financial Research Center.
  3. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  4. Andrew Bernard & J. Bradford Jensen & Peter Schott, 2003. "Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics," IFS Working Papers, Institute for Fiscal Studies W03/10, Institute for Fiscal Studies.
  5. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, Econometric Society, vol. 70(5), pages 1741-1779, September.
  6. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3381, C.E.P.R. Discussion Papers.
  7. Baldwin, Richard & Krugman, Paul, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(4), pages 635-54, November.
  8. Baldwin, Richard, 1988. "Hyteresis in Import Prices: The Beachhead Effect," American Economic Review, American Economic Association, American Economic Association, vol. 78(4), pages 773-85, September.
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Cited by:
  1. Baldwin, Richard & Robert-Nicoud, Frédéric, 2005. "Trade and Growth with Heterogeneous Firms," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4965, C.E.P.R. Discussion Papers.

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