Creative destruction and export patterns

This paper presents an international trade model based on a market structure with monopolistic competition and age dependent quality and productivity in producing each product variety. Due to innovations new product varieties of a still higher quality enter the market every period rendering old varieties obsolete. For a given technology (variety) production costs decrease after an infant period due to learning. While all firms are assumed to be symmetric in a life-cycle perspective, at a given point in time firms of different ages differ in productivity, firm size, product quality, and export behavior. The model highlights a process of creative destruction, which allows firms to produce in a finite span of periods determined by the intensity of product and process innovations. The model predicts a wide range of export behavior of the individual firm during its life cycle depending on the structure of technological progress and trade costs. These predictions are consistent with empirical evidence on firm's internationalization in a dynamic perspective.