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Trade and Growth with Heterogenous Firms

  • Baldwin, Richard
  • Robert-Nicoud, Frédéric

This paper explores the impact of trade on growth when firms are heterogeneous. We find that greater openness produces anti-and pro-growth effects. The Melitz-model selection effects raises the expected cost of introducing a new variety and this tends to slow the rate of new-variety introduction and hence growth. The pro-growth effect stems from the impact that freer trade has on the marginal cost of innovating. The balance of the two effects is ambiguous with the sign depending upon the exact nature of the innovation technology and its connection to international trade in goods and ideas. We consider five special cases (these include the Grossman-Helpman, the Coe-Helpman and Rivera-Batiz-Romer models) two of which suggest that trade harms growth; the others predicting the opposite.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5563.

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Date of creation: Mar 2006
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Handle: RePEc:cpr:ceprdp:5563
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  1. Bulent Unel, . "Technology Diffusion through Trade with Heterogeneous Firms," Departmental Working Papers 2006-15, Department of Economics, Louisiana State University.
  2. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  3. Robert Baldwin & Frédéric Robert-Nicoud, 2006. "Trade and growth with heterogeneous firms," LSE Research Online Documents on Economics 19856, London School of Economics and Political Science, LSE Library.
  4. Rivera-Batiz, Luis A & Romer, Paul M, 1991. "Economic Integration and Endogenous Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 531-55, May.
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  20. Eaton, Jonathan & Kortum, Samuel, 2001. "Technology, trade, and growth: A unified framework," European Economic Review, Elsevier, vol. 45(4-6), pages 742-755, May.
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  22. Andrew B. Bernard & J. Bradford Jensen, 2000. "Exporting and Productivity," Working Papers 00-07, Center for Economic Studies, U.S. Census Bureau.
  23. Richard Baldwin, 1988. "Hysteresis In Import Prices: The Beachhead Effect," NBER Working Papers 2545, National Bureau of Economic Research, Inc.
  24. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  25. Volker Nocke, 2003. "A Gap for Me: Entrepreneurs and Entry," PIER Working Paper Archive 03-019, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  26. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
  27. Hopenhayn, Hugo A., 1992. "Exit, selection, and the value of firms," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 621-653.
  28. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jenson & Samuel Kortum, 2000. "Plants and Productivity in International Trade," NBER Working Papers 7688, National Bureau of Economic Research, Inc.
  29. 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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  31. Bernard, Andrew B. & Jensen, J. Bradford & Schott, Peter K., 2006. "Trade costs, firms and productivity," Journal of Monetary Economics, Elsevier, vol. 53(5), pages 917-937, July.
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  33. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers 91, Princeton, Department of Economics - Financial Research Center.
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  35. 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.
  36. Baldwin, Richard & Forslid, Rikard, 1996. "Trade Liberalization and Endogenous Growth: A q-Theory Approach," CEPR Discussion Papers 1397, C.E.P.R. Discussion Papers.
  37. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  38. Bee Yan Aw & Sukkyun Chung & Mark J. Roberts, 1998. "Productivity and the Decision to Export: Micro Evidence from Taiwan and South Korea," NBER Working Papers 6558, National Bureau of Economic Research, Inc.
  39. Baldwin, Richard & Robert-Nicoud, Frédéric, 2004. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity: A Comment," CEPR Discussion Papers 4634, C.E.P.R. Discussion Papers.
  40. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting Trade: Firms, Industries, and Export Destinations," NBER Working Papers 10344, National Bureau of Economic Research, Inc.
  41. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  42. Erzo G.J. Luttmer, 2004. "The size distribution of firms in an economy with fixed and entry costs," Working Papers 633, Federal Reserve Bank of Minneapolis.
  43. Dinopoulos, Elias & Segerstrom, Paul, 1999. "The dynamic effects of contingent tariffs," Journal of International Economics, Elsevier, vol. 47(1), pages 191-222, February.
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