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Innovation and trade with heterogeneous firms

  • Long, Ngo Van
  • Raff, Horst
  • Stähler, Frank

This paper examines how trade liberalization affects the innovation incentives of firms, and what this implies for industry productivity. For this purpose we develop a reciprocal dumping model of international trade with heterogeneous firms and endogenous R&D. Among the robust results that hold both in the short run when there is no entry, and in the long run under free entry are that trade liberalization increases aggregate R&D when trade costs are low and decreases R&D when trade costs are high. Expected industry productivity rises as trade costs fall.

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File URL: http://www.sciencedirect.com/science/article/pii/S0022199611000341
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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 84 (2011)
Issue (Month): 2 (July)
Pages: 149-159

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Handle: RePEc:eee:inecon:v:84:y:2011:i:2:p:149-159
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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