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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. 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 upwards, 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.

Suggested Citation

  • Sampson, Thomas, 2016. "Dynamic selection: an idea flows theory of entry, trade and growth," LSE Research Online Documents on Economics 62623, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:62623
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    Cited by:

    1. 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.
    2. Michele Battisti & Filippo Belloc & Massimo Del Gatto, 2017. "Technology-specific Production Functions," Working Paper series 17-26, Rimini Centre for Economic Analysis.
    3. Giacomo Magistretti & Marco Tabellini, 2018. "Economic Integration and Democracy: An Empirical Investigation," Harvard Business School Working Papers 19-003, Harvard Business School.
    4. Naito, Takumi, 2017. "An asymmetric Melitz model of trade and growth," Economics Letters, Elsevier, vol. 158(C), pages 80-83.
    5. Takumi Naito, 2018. "A lab-equipment model of growth with heterogeneous firms and asymmetric countries," Vanderbilt University Department of Economics Working Papers 18-00009, Vanderbilt University Department of Economics.
    6. repec:bin:bpeajo:v:47:y:2016:i:2016-02:p:367-383 is not listed on IDEAS
    7. Ufuk Akcigit & Sina T. Ates & Giammario Impullitti, 2018. "Innovation and Trade Policy in a Globalized World," CEP Discussion Papers dp1589, Centre for Economic Performance, LSE.
    8. 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.
    9. repec:eee:reecon:v:71:y:2017:i:3:p:373-383 is not listed on IDEAS
    10. Michele Battisti & Filippo Belloc & Massimo Del Gatto, 2018. "Labour Productivity and Firm-Level TFP with Technology-Specific Production Functions," Department of Economics University of Siena 789, Department of Economics, University of Siena.
    11. Pian Shu & Claudia Steinwender, 2019. "The Impact of Trade Liberalization on Firm Productivity and Innovation," Innovation Policy and the Economy, University of Chicago Press, vol. 19(1), pages 39-68.
    12. Gabriel Felbermayr & h.c. 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.
    13. 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.
    14. Sandra Bernick & Richard Davies & Anna Valero, 2017. "Industry in Britain - An Atlas," CEP Special Papers 34, Centre for Economic Performance, LSE.
    15. Kishi, Keiichi & Okada, Keisuke, 2018. "Trade Liberalization, Technology Diffusion, and Productivity," MPRA Paper 88597, University Library of Munich, Germany.
    16. repec:eee:finlet:v:26:y:2018:i:c:p:132-138 is not listed on IDEAS
    17. repec:eee:ecmode:v:73:y:2018:i:c:p:317-328 is not listed on IDEAS
    18. Santacreu, Ana Maria & Varela, Liliana, 2019. "Innovation and the Patterns of Trade: A Firm-Level Analysis," CAGE Online Working Paper Series 404, Competitive Advantage in the Global Economy (CAGE).
    19. 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.
    20. 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.
    21. repec:taf:specan:v:13:y:2018:i:1:p:5-35 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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