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Innovation and trade with heterogeneous firms

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

Abstract

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.

Suggested Citation

  • Long, Ngo Van & Raff, Horst & Stähler, Frank, 2011. "Innovation and trade with heterogeneous firms," Journal of International Economics, Elsevier, vol. 84(2), pages 149-159, July.
  • Handle: RePEc:eee:inecon:v:84:y:2011:i:2:p:149-159
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    More about this item

    Keywords

    International trade Firm heterogeneity R&D Productivity Market structure;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration

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