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Dynamic selection: an idea flows theory of entry, trade and growth

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  • Sampson, Thomas

Abstract

This paper develops an idea flows theory of trade and growth with heterogeneous firms. New firms learn from incumbent firms, but the diffusion technology ensures entrants learn not only from frontier technologies, but from the entire technology distribution. By shifting the productivity distribution upwards, selection on productivity causes technology diffusion and this complementarity generates endogenous growth without scale effects. On the balanced growth path, the productivity distribution is a traveling wave with an increasing lower bound. Growth of the lower bound causes dynamic selection. Free entry mandates that trade liberalization increases the rates of technology diffusion and dynamic selection to offset the profits from new export opportunities. Consequently, trade integration raises long-run growth. The dynamic selection effect is a new source of gains from trade not found when firms are homogeneous. Calibrating the model implies that dynamic selection approximately triples the gains from trade relative to heterogeneous firm economies with static steady states.

Suggested Citation

  • Sampson, Thomas, 2014. "Dynamic selection: an idea flows theory of entry, trade and growth," LSE Research Online Documents on Economics 60363, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:60363
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    File URL: http://eprints.lse.ac.uk/60363/
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    References listed on IDEAS

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    Cited by:

    1. James E. Anderson & Mario Larch & Yoto V. Yotov, 2015. "Growth and Trade with Frictions: A Structural Estimation Framework," CESifo Working Paper Series 5446, CESifo Group Munich.
    2. Giammario Impullitti & Omar Licandro, 2010. "Trade, Firm Selection, and Innovation: the Competition Channel," Working Papers 495, Barcelona Graduate School of Economics.
    3. Gene M. Grossman & Elhanan Helpman, 2015. "Globalization and Growth," American Economic Review, American Economic Association, vol. 105(5), pages 100-104, May.
    4. Nicholas Bloom & Paul Romer & Stephen Terry & John Van Reenen, 2014. "Trapped Factors and China's Impact on Global Growth," CEP Discussion Papers dp1261, Centre for Economic Performance, LSE.
    5. Ourens, Guzmán, 2016. "Trade and growth with heterogeneous firms revisited," Journal of International Economics, Elsevier, vol. 100(C), pages 194-202.
    6. Benedikt Heid, 2014. "Essays on International Trade and Development," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 55, June.

    More about this item

    Keywords

    International trade; firm heterogeneity; technology diffusion; endogenous growth;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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