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International trade and technological competition in markets with dynamic increasing returns

Author

Listed:
  • Luca Fontanelli
  • Mattia Guerini
  • Mauro Napoletano

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

We build a simple international trade model to study how the interaction between imperfect market selection and technological learning jointly shapes trade patterns as well as firm and industry dynamics. The model features two countries populated by firms heterogeneous in their productivity and size. Market selection is driven by a finite pairwise Pólya urn process, while a geometric random walk characterizes the idiosyncratic cumulative firm learning process. We show that the model is able to jointly reproduce a wide ensemble of stylized facts concerning intra-industry trade, industry and firm dynamics as well as realistic dynamics of export and productivity leadership at the country level. A series of sensitivity exercises on the degree of trade openness and the tightness of the market selection process allow us to draw interesting policy insights on concentration, volatility and the dynamics of international leadership in both export shares and aggregate productivity.

Suggested Citation

  • Luca Fontanelli & Mattia Guerini & Mauro Napoletano, 2023. "International trade and technological competition in markets with dynamic increasing returns," Sciences Po Economics Publications (main) hal-04531047, HAL.
    • Handle: RePEc:hal:spmain:hal-04531047
    DOI: 10.1016/j.jedc.2023.104619
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    Cited by:

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    2. Fontanelli, Luca & Guerini, Mattia & Miniaci, Raffaele & Secchi, Angelo, "undated". "Predictive AI and productivity growth dynamics: evidence from French firms," FEEM Working Papers 355806, Fondazione Eni Enrico Mattei (FEEM).
    3. Pan, Zhaoshuai & Guo, Jiaxing, 2025. "External uncertainty and raw material price in energy transition: Implications for green development," Renewable Energy, Elsevier, vol. 241(C).
    4. Luca Fontanelli & Mauro Napoletano & Angelo Secchi, 2025. "Rethinking volatility scaling in firm growth," Sciences Po Economics Publications (main) hal-05261824, HAL.
    5. Luca Fontanelli, 2023. "Theories of market selection: a survey," LEM Papers Series 2023/22, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    6. Thomas Gottfried & Stefan Grosskinsky, 2025. "Wages and capital returns in a generalized Pólya urn," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 20(2), pages 477-518, April.
    7. Joseph Hickey, 2023. "Simple model of market share dynamics based on clients' firm-switching decisions," Papers 2304.08727, arXiv.org, revised Nov 2023.
    8. Hickey, Joseph, 2024. "Simple model of market share dynamics based on clients’ firm-switching decisions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 635(C).
    9. Ciambezi, Leonardo & Guerini, Mattia & Napoletano, Mauro & Roventini, Andrea, 2025. "Accounting for the multiple sources of inflation: An agent-based model investigation," Journal of Economic Dynamics and Control, Elsevier, vol. 178(C).

    More about this item

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • F1 - International Economics - - Trade
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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