Trade liberalization and heterogeneous within-firm productivity improvements
This paper develops an intra-industry model of trade with heterogeneous firms to investigate the impact of trade on the evolution of within firm productivity. The main contribution is to incorporate endogenous labor productivity gains. Heterogeneous firms have different incentives to invest in foreign technology which in turns enhances efficiency heterogeneously. Trade liberalization reduces the price of imported capital equipment and increases factor demands. These mechanisms introduce two novel results. First, aggregate productivity increases due to within-firm productivity improvements. Second, tariffs reduction has little impact on the extensive margin of trade in countries already highly open.
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- Jan De Loecker & Jozef Konings, 2003.
"Creative Destruction and Productivity Growth in an Emerging Economy Evidence from Slovenian Manufacturing,"
LICOS Discussion Papers
13803, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
- De Loecker, Jan & Konings, Jozef, 2004. "Creative Destruction and Productivity Growth in an Emerging Economy: Evidence from Slovenian Manufacturing," CEPR Discussion Papers 4238, C.E.P.R. Discussion Papers.
- De Loecker, Jan & Konings, Jozef, 2003. "Creative Destruction and Productivity Growth in an Emerging Economy: Evidence from Slovenian Manufacturing," IZA Discussion Papers 971, Institute for the Study of Labor (IZA).