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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 e..ects. While a trade model with firm heterogeneity can account for the first e..ect, 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 European University Institute in its series Economics Working Papers with number ECO2007/58.

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Date of creation: 2007
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Handle: RePEc:eui:euiwps:eco2007/58
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  17. Lucia Foster & John Haltiwanger & C.J. Krizan, 1998. "Aggregate Productivity Growth: Lessons from Microeconomic Evidence," NBER Working Papers 6803, National Bureau of Economic Research, Inc.
  18. Baldwin, Richard & Robert-Nicoud, Frédéric, 2005. "Trade and Growth with Heterogeneous Firms," CEPR Discussion Papers 4965, C.E.P.R. Discussion Papers.
  19. Petia Topalova, 2004. "Trade Liberalization and Firm Productivity: The Case of India," IMF Working Papers 04/28, International Monetary Fund.
  20. Parisi, Maria Laura & Schiantarelli, Fabio & Sembenelli, Alessandro, 2006. "Productivity, innovation and R&D: Micro evidence for Italy," European Economic Review, Elsevier, vol. 50(8), pages 2037-2061, November.
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