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Technology adoption and the selection effect of trade

  • Antonio Navas-Ruiz


  • Davide Sala


The reallocation of output across plants and the productivity growth at individual plants are both important sources of productivity growth at the industry level. Recent evidence has shown that trade liberalization is related to both effects. While a trade model with firm heterogeneity can account for the first effect, it can not explain the second effect. We add to this model the option for firms to costly adopt more productive technologies and show that plant productivity actually rises in response to lower trade costs. Following trade liberalization, selection into exporting raises the market share only for some exporters. Therefore, a greater scale of operation amplifies their return from costly productivity-enhancement investments and leads a greater proportion of them to implement a more innovative technology.

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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we076737.

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Date of creation: Aug 2007
Date of revision:
Handle: RePEc:cte:werepe:we076737
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  19. Sourafel Girma & David Greenaway & Richard Kneller, 2004. "Does Exporting Increase Productivity? A Microeconometric Analysis of Matched Firms," Review of International Economics, Wiley Blackwell, vol. 12(5), pages 855-866, November.
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