Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Effects of Trade Liberalization on Productivity and Welfare: The Role of Firm Heterogeneity, R&D and Market Structure

Contents:

Author Info

  • Ngo Van Long

    ()
    (Department of Economics, McGill University, Montreal)

  • Horst Raff

    ()
    (Department of Economics, University of Kiel)

  • Frank Staehler

    ()
    (Department of Economics, University of Otago)

Abstract

This paper develops an oligopolistic model of international trade with heterogeneous firms and endogenous R&D to examine how trade liberalization affects firm and industry productivity, as well as social welfare. We identify four effects of trade liberalization on productivity: (i) a direct effect through changes in R&D investment; (ii) a scale effect due to changes in firm size; (iii) a selection effect due to inefficient firms leaving the market; and (iv) a market-share reallocation effect as efficient firms expand and inefficient firms reduce their output. We show how these effects operate in the short run when market structure is fixed, and in the long run when market structure is endogenous. Among the robust results that hold for any market structure are that trade liberalization (i) increases (decreases) aggregate R&D for low (high) trade costs; (ii) increases expected firm size if trade costs are high; and (iii) raises expected social welfare if trade costs are low.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.business.otago.ac.nz/econ/research/discussionpapers/DP_0710.pdf
File Function: First version, 2007
Download Restriction: no

Bibliographic Info

Paper provided by University of Otago, Department of Economics in its series Working Papers with number 0710.

as in new window
Length: 29 pages
Date of creation: Jun 2007
Date of revision: Jun 2007
Handle: RePEc:otg:wpaper:0710

Contact details of provider:
Postal: P.O. Box 56, Dunedin
Phone: +64 3 479 8725
Fax: 64 3 479 8171
Email:
Web page: http://www.business.otago.ac.nz/econ
More information through EDIRC

Related research

Keywords: international trade; firm heterogeneity; R&D; productivity; market structure;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
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.:
as in new window
  1. Miyagiwa, K. & Ohno, Y., 1993. "Closing the Technology Gap Under Protection," Working Papers 93-09, University of Washington, Department of Economics.
  2. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers 11375, Iowa State University, Department of Economics.
  3. Josh Ederington & Phillip McCalman, 2007. "The Impact of Trade Liberalization on Productivity Within and Across Industries: Theory and Evidence," Development Research Unit Working Paper Series 24-07, Monash University, Department of Economics.
  4. Robert W. Staiger & Kyle Bagwell, 1990. "The Sensitivity of Strategic and Corrective R&D Policy in Oligopolistic Industries," NBER Working Papers 3236, National Bureau of Economic Research, Inc.
  5. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," Development Working Papers 201, Centro Studi Luca d\'Agliano, University of Milano.
  6. Mary Hallward-Driemeier & Giuseppe Iarossi & Kenneth L. Sokoloff, 2002. "Exports and Manufacturing Productivity in East Asia: A Comparative Analysis with Firm-Level Data," NBER Working Papers 8894, National Bureau of Economic Research, Inc.
  7. Amiti, Mary & Konings, Jozef, 2005. "Trade Liberalization, Intermediate Inputs and Productivity: Evidence from Indonesia," CEPR Discussion Papers 5104, C.E.P.R. Discussion Papers.
  8. Peter Cramton & Thomas R. Palfrey, 1991. "Cartel Enforcement with Uncertainty About Costs," Papers of Peter Cramton 90ier, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  9. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
  10. repec:rus:hseeco:122439 is not listed on IDEAS
  11. Nina Pavcnik, 2002. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 245-276.
  12. Roberto Alvarez & Ricardo López, 2005. "Exporting and performance: evidence from Chilean plants," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1384-1400, November.
  13. Bee Yan Aw & Mark J. Roberts & Tor Winston, 2007. "Export Market Participation, Investments in R&D and Worker Training, and the Evolution of Firm Productivity," The World Economy, Wiley Blackwell, vol. 30(1), pages 83-104, 01.
  14. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  15. James Brander & Paul Krugman, 1980. "A "Reciprocal Dumping" Model of International Trade," Working Papers 405, Queen's University, Department of Economics.
  16. Mary Amiti & Jozef Konings, 2005. "Trade Liberalization, Intermediate Inputs, and Productivity," IMF Working Papers 05/146, International Monetary Fund.
  17. Joachim Wagner, 2007. "Exports and Productivity: A Survey of the Evidence from Firm-level Data," The World Economy, Wiley Blackwell, vol. 30(1), pages 60-82, 01.
  18. Richard Baldwin, 2005. "Heterogeneous Firms and Trade: Testable and Untestable Properties of the Melitz Model," NBER Working Papers 11471, National Bureau of Economic Research, Inc.
  19. Haaland, Jan I. & Kind, Hans Jarle, 2008. "R&D policies, trade and process innovation," Journal of International Economics, Elsevier, vol. 74(1), pages 170-187, January.
  20. Gustafsson, Peter & Segerstrom, Paul, 2006. "Trade Liberalization and Productivity Growth," CEPR Discussion Papers 5894, C.E.P.R. Discussion Papers.
  21. Head, Keith & Ries, John, 1999. "Rationalization effects of tariff reductions," Journal of International Economics, Elsevier, vol. 47(2), pages 295-320, April.
  22. Daniel Trefler, 2006. "The Long and Short of the Canada-U.S. Free Trade Agreement," STICERD - Economics of Industry Papers 41, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  23. Ana Fernandes, 2002. "Trade Policy, Trade Volumes and Plant-Level Productivity in Colombian Manufacturing Industries," Working Papers 847, Economic Growth Center, Yale University.
  24. Fernandes, Ana M., 2007. "Trade policy, trade volumes and plant-level productivity in Colombian manufacturing industries," Journal of International Economics, Elsevier, vol. 71(1), pages 52-71, March.
  25. 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.
  26. Konings, Jozef & Vandenbussche, Hylke, 2004. "Antidumping Protection and Productivity Growth of Domestic Firms," CEPR Discussion Papers 4620, C.E.P.R. Discussion Papers.
  27. Muendler, Marc-Andreas, 2004. "Trade, Technology, and Productivity: A Study of Brazilian Manufacturers, 1986-1998," University of California at San Diego, Economics Working Paper Series qt6m96c2r7, Department of Economics, UC San Diego.
  28. David Cox & Richard Harris, 1983. "Trade Liberalization and Industrial Organization: Some Estimates for Canada," Working Papers 523, Queen's University, Department of Economics.
  29. Baldwin, Richard & Forslid, Rikard, 2004. "Trade Liberalization with Heterogenous Firms," CEPR Discussion Papers 4635, C.E.P.R. Discussion Papers.
  30. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  31. David Greenaway & Richard Kneller, 2007. "Firm heterogeneity, exporting and foreign direct investment," Economic Journal, Royal Economic Society, vol. 117(517), pages F134-F161, 02.
  32. Mark Funk, 2003. "The Effects of Trade on Research and Development," Open Economies Review, Springer, vol. 14(1), pages 29-42, January.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Itai Agur, 2010. "Trade Liberalization, Firm Selection, and Variety Growth," Review of International Economics, Wiley Blackwell, vol. 18(3), pages 582-594, 08.
  2. Crespo, Aranzazu, 2012. "Trade, Innovation and Productivity: A Quantitative Analysis of Europe," MPRA Paper 57162, University Library of Munich, Germany.
  3. Anderson, Kym & Lattimore, Ralph G. & Lloyd, Peter J. & MacLaren, Donald, 2008. "Distortions to Agricultural Incentives in Australia and New Zealand," Agricultural Distortions Working Paper 48387, World Bank.
  4. Michele Imbruno, 2008. "EXPORTING, PRODUCTIVITY AND MARKET INTEGRATON: Italian manufacturing firms within the European context," Quaderni DSEMS 22-2008, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
  5. Nicolas Coeurdacier & Roberto A. De Santis & Antonin Aviat, 2009. "Cross-border mergers and acquisitions and European integration," Economic Policy, CEPR & CES & MSH, vol. 24, pages 55-106, 01.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:otg:wpaper:0710. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Janet Bryant).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.