Asymmetric Trade Liberalisation, Sector Heterogeneity and Innovation
AbstractInnovation, mark-ups and the degree of trade openness vary substantially across sectors. This paper builds a multi-sector endogenous growth model to study the influence of asymmetric trade liberalisation and sectoral differences in the degree of product market competition on the effect that trade has on R&D investments at a firm level. I find that differences in the degree of competition generate large differences in firm innovative responses to trade liberalisation. A movement from autarky to free trade promotes innovation and productivity growth in those sectors which are initially less competitive. However, when the initial tariff level is common across sectors, a homogeneous tariff reduction promotes innovation in those sectors which are initially more competitive. The paper suggests that trade liberalisation could be a source of industry productivity divergence: firms that are located in industries with greater exposure to foreign trade, invest a greater amount in R&D contributing to industry productivity growth. Finally the paper outlines the importance of reallocation effects within industry and across industries that are the result of these asymmetries. An asymmetric trade liberalisation has a small but negative impact on aggregate productivity growth.
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Bibliographic InfoPaper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2013009.
Length: 39 pages
Date of creation: 2013
Date of revision:
sectorial productivity; international trade; innovation;
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-05 (All new papers)
- NEP-CSE-2013-08-05 (Economics of Strategic Management)
- NEP-INO-2013-08-05 (Innovation)
- NEP-INT-2013-08-05 (International Trade)
- NEP-TID-2013-08-05 (Technology & Industrial Dynamics)
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