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Innovation, firm dynamics, and international trade

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Author Info
Andrew Atkeson
Ariel Burstein

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Abstract

We present a general equilibrium model of the decisions of firms to innovate and to engage in international trade. We use the model to analyze the impact of a reduction in international trade costs on firms' process and product innovative activity. We first show analytically that if all firms export with equal intensity, then a reduction in international trade costs has no impact at all, in steady-state, on firms' investments in process innovation. We then show that if only a subset of firms export, a decline in marginal trade costs raises process innovation in exporting firms relative to that of non-exporting firms. This reallocation of process innovation reinforces existing patterns of comparative advantage, and leads to an amplified response of trade volumes and output over time. In a quantitative version of the model, we show that the increase in process innovation is largely offset by a decline in product innovation. We find that, even if process innovation is very elastic and leads to a large dynamic response of trade, output, consumption, and the firm size distribution, the dynamic welfare gains are very similar to those in a model with inelastic process innovation.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13326.

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Date of creation: Aug 2007
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Handle: RePEc:nbr:nberwo:13326

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Find related papers by JEL classification:
F1 - International Economics - - Trade
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
O3 - Economic Development, Technological Change, and Growth - - Technological Change

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References listed on IDEAS
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  3. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and Productivity in International Trade," Boston University - Institute for Economic Development 105, Boston University, Institute for Economic Development. [Downloadable!]
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  4. Steven J. Davis & John Haltiwanger & Ron Jarmin & Javier Miranda, 2006. "Volatility and Dispersion in Business Growth Rates: Publicly Traded versus Privately Held Firms," NBER Working Papers 12354, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Andrew B. Bernard & J. Bradford Jensen & Peter K. Schott, 2005. "Importers, Exporters, and Multinationals: A Portrait of Firms in the U.S. that Trade Goods," NBER Working Papers 11404, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Tor Jakob Klette & Samuel Kortum, 2004. "Innovating Firms and Aggregate Innovation," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 986-1018, October.
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  7. Luis A. Rivera-Batiz & Paul M. Romer, 1990. "Economic Integration and Endogenous Growth," NBER Working Papers 3528, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. David E. Weinstein & Christian Broda, 2004. "Globalization And The Gains From Variety," Econometric Society 2004 Latin American Meetings 327, Econometric Society. [Downloadable!]
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  9. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Coe, David T. & Helpman, Elhanan, 1995. "International R&D spillovers," European Economic Review, Elsevier, vol. 39(5), pages 859-887, May. [Downloadable!] (restricted)
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  12. Grossman, Gene M & Helpman, Elhanan, 1989. "Product Development and International Trade," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1261-83, December. [Downloadable!] (restricted)
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  13. Zvi Griliches, 1979. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 92-116, Spring. [Downloadable!] (restricted)
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  14. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October. [Downloadable!] (restricted)
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  17. George Alessandria & Horag Choi, 2007. "Establishment heterogeneity, exporter dynamics, and the effects of trade liberalization," Working Papers 07-17, Federal Reserve Bank of Philadelphia. [Downloadable!]
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  19. Richard E. Caves, 1998. "Industrial Organization and New Findings on the Turnover and Mobility of Firms," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 1947-1982, December. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, 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. Tetsugen Haruyama & Laixun Zhao, 2008. "Trade and Firm Heterogeneity In A Quality-Ladder Model of Growth," Discussion Paper Series 223, Research Institute for Economics & Business Administration, Kobe University. [Downloadable!]
  2. Erzo G.J. Luttmer, 2007. "New goods and the size distribution of firms," Working Papers 649, Federal Reserve Bank of Minneapolis. [Downloadable!]
  3. Bee Yan Aw & Mark J. Roberts & Daniel Yi Xu, 2009. "R&D Investment, Exporting, and Productivity Dynamics," NBER Working Papers 14670, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. George Alessandria & Horag Choi, 2007. "Establishment heterogeneity, exporter dynamics, and the effects of trade liberalization," Working Papers 07-17, Federal Reserve Bank of Philadelphia. [Downloadable!]
  5. Antonio Navas-Ruiz & Davide Sala, 2007. "Technology Adoption and the Selection Effect of Trade," Economics Working Papers ECO2007/58, European University Institute. [Downloadable!]
    Other versions:
  6. Aida Caldera, 2009. "Innovation and Exporting: Edvidence from Spanish Manufacturing Firms," ECARES Working Papers 2009_014, Université Libre de Bruxelles, Ecares. [Downloadable!]
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