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The Interaction Between Technology Adoption and Trade When Firms are Heterogeneous

  • Bulent Unel

This paper develops a monopolistic competition model with heterogeneous firms to study the interaction between technology adoption and trade in a world of two countries facing different technology adoption costs. It shows that a reduction in the technology adoption cost in one country increases the productivity, induces more firms to adopt advanced technology, and improves welfare in this country, while decreasing the pro- ductivity, inducing more firms to switch back to old technology, and reducing welfare in the other country. Furthermore, although a reduction in transport costs always makes the country with lower adoption cost better off, it can hurt the other country.

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File URL: http://hdl.handle.net/10.1111/roie.12071
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Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 21 (2013)
Issue (Month): 4 (09)
Pages: 797-808

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Handle: RePEc:bla:reviec:v:21:y:2013:i:4:p:797-808
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  1. Parente, Stephen L & Prescott, Edward C, 1994. "Barriers to Technology Adoption and Development," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 298-321, April.
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  12. Georg GÖTZ, 1996. "Monopolistic Competition and the Diffusion of New Technology," Vienna Economics Papers vie9610, University of Vienna, Department of Economics.
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  14. Ederington, Josh & McCalman, Phillip, 2008. "Endogenous firm heterogeneity and the dynamics of trade liberalization," Journal of International Economics, Elsevier, vol. 74(2), pages 422-440, March.
  15. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
  16. Rod Falvey & David Greenaway & Zhihong Yu, 2011. "Catching Up or Pulling Away: Intra-Industry Trade, Productivity Gaps and Heterogeneous Firms," Open Economies Review, Springer, vol. 22(1), pages 17-38, February.
  17. Svetlana Demidova, 2008. "Productivity Improvements And Falling Trade Costs: Boon Or Bane?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1437-1462, November.
  18. Yeaple, Stephen Ross, 2005. "A simple model of firm heterogeneity, international trade, and wages," Journal of International Economics, Elsevier, vol. 65(1), pages 1-20, January.
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