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Dynamic Selection: An Idea Flows Theory of Entry, Trade, and Growth

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  • Thomas Sampson

Abstract

This article develops an idea flows theory of trade and growth with heterogeneous firms. Entrants learn from incumbent firms, and the diffusion technology is such that learning depends not on the frontier technology, but on the entire distribution of productivity. By shifting the productivity distribution upward, selection causes technology diffusion, and in equilibrium this dynamic selection process leads to endogenous growth without scale effects. On the balanced growth path, the productivity distribution is a traveling wave with a lower bound that increases over time. The free entry condition implies trade liberalization must increase the dynamic selection rate to offset the profits from new export opportunities. Consequently, trade integration raises long-run growth. Dynamic selection is a new source of gains from trade not found when firms are homogeneous. Calibrating the model implies dynamic selection approximately triples the gains from trade compared to heterogeneous firm economies with static steady states. JEL Codes: F12, O33, O41.

Suggested Citation

  • Thomas Sampson, 2016. "Dynamic Selection: An Idea Flows Theory of Entry, Trade, and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 131(1), pages 315-380.
  • Handle: RePEc:oup:qjecon:v:131:y:2016:i:1:p:315-380.
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    File URL: http://hdl.handle.net/10.1093/qje/qjv032
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    Citations

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    Cited by:

    1. Gabriel Felbermayr & Clemens Fuest & Jasmin Katrin Gröschl & Daniel Stöhlker, 2017. "Economic Effects of Brexit on the European Economy," EconPol Policy Reports 4, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    2. Catherine Fuss & Angelos Theodorakopoulos, 2018. "Compositional changes in aggregate productivity in an era of globalisation and financial crisis," Working Paper Research 336, National Bank of Belgium.
    3. Liuchun Deng, 2016. "Specialization Dynamics, Convergence, and Idea Flows," SERIES 09-2016, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised Nov 2016.
    4. Sandra Bernick & Richard Davies & Anna Valero, 2017. "Industry in Britain - An Atlas," CEP Special Papers 34, Centre for Economic Performance, LSE.
    5. repec:eee:reecon:v:71:y:2017:i:3:p:540-563 is not listed on IDEAS
    6. Michele Battisti & Filippo Belloc & Massimo Del Gatto, 2017. "Technology-specific Production Functions," Working Paper series 17-26, Rimini Centre for Economic Analysis.
    7. Gabriel Felbermayr, 2016. "Economic Analysis of TTIP," ifo Working Paper Series 215, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    8. Naito, Takumi, 2017. "An asymmetric Melitz model of trade and growth," Economics Letters, Elsevier, vol. 158(C), pages 80-83.
    9. Thomas Sampson, 2017. "Brexit: The Economics of International Disintegration," CESifo Working Paper Series 6668, CESifo Group Munich.
    10. Ken Coutts & Graham Gudgin & Jordan Buchanan, 2018. "How the Economics Profession Got It Wrong on Brexit," Working Papers wp493, Centre for Business Research, University of Cambridge.
    11. Thomas Sampson, 2017. "Brexit: The Economics of International Disintegration," CEP Discussion Papers dp1499, Centre for Economic Performance, LSE.
    12. repec:bin:bpeajo:v:47:y:2016:i:2016-02:p:367-383 is not listed on IDEAS
    13. Sampson, Thomas, 2017. "Brexit: the economics of international disintegration," LSE Research Online Documents on Economics 86591, London School of Economics and Political Science, LSE Library.
    14. Naito, Takumi, 2017. "Growth and welfare effects of unilateral trade liberalization with heterogeneous firms and asymmetric countries," Journal of International Economics, Elsevier, vol. 109(C), pages 167-173.
    15. repec:nbr:nberch:14095 is not listed on IDEAS
    16. repec:eee:reecon:v:71:y:2017:i:3:p:373-383 is not listed on IDEAS

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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