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Asymmetric trade liberalisation, sector heterogeneity andinnovation

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  • Antonio Navas Ruiz
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    Abstract

    Innovation, 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 Info

    Paper provided by FIW in its series FIW Working Paper series with number 127.

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    Length: 39
    Date of creation: Aug 2013
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    Handle: RePEc:wsr:wpaper:y:2013:i:127

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    Keywords: Sectorial productivity; international trade; innovation;

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    1. Antonio Navas-Ruiz & Davide Sala, 2007. "Technology Adoption and the Selection Effect of Trade," Economics Working Papers, European University Institute ECO2007/58, European University Institute.
    2. Licandro, Omar & Navas-Ruiz, Antonio, 2007. "Trade Liberalization, Competition and Growth," CEPR Discussion Papers 6500, C.E.P.R. Discussion Papers.
    3. Bernhofen, Daniel M., 1999. "Intra-industry trade and strategic interaction: Theory and evidence," Journal of International Economics, Elsevier, vol. 47(1), pages 225-244, February.
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    14. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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    16. Rachel Griffith & Rupert Harrison & Helen Simpson, 2006. "The link between product market reform, innovation and EU macroeconomic performance," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 243, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    17. James Brander, 1980. "Intra-Industry Trade in Identical Commodities," Working Papers, Queen's University, Department of Economics 380, Queen's University, Department of Economics.
    18. Chen, Natalie & Imbs, Jean & Scott, Andrew, 2009. "The dynamics of trade and competition," Journal of International Economics, Elsevier, vol. 77(1), pages 50-62, February.
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