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Trade, innovation and productivity


  • Aranzazu Crespo Rodríguez

    () (Universidad Carlos III de Madrid)


Empirical evidence shows that trade liberalization improves pro- ductivity not just because of a selection e ect but also because of productivity gains within rms. This paper proposes a model that allows for both channels, by adding the option to innovate to a trade model. In contrast to the existing literature, the process innovation is modeled as a continuous variable and there is both a xed and a variable cost to innovate. The interaction between the innovation and export choices is key to understand the di erent equilibria in the open economy and the outcomes following a trade liberalization. I calibrate the model to match the Spanish economy and explore the consequences of di erent trade policies. Simulations reveal that a trade policy that enhances innovation does not necessarily induce larger productivity gains.

Suggested Citation

  • Aranzazu Crespo Rodríguez, 2012. "Trade, innovation and productivity," Working Papers 2012-06, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  • Handle: RePEc:imd:wpaper:wp2012-06
    Note: This paper is included in the IMDEA Social Sciences Working Paper Series through the Bank of Spain Excellence Programme

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    References listed on IDEAS

    1. Balistreri, Edward J. & Hillberry, Russell H. & Rutherford, Thomas F., 2011. "Structural estimation and solution of international trade models with heterogeneous firms," Journal of International Economics, Elsevier, vol. 83(2), pages 95-108, March.
    2. Nina Pavcnik, 2002. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 245-276.
    3. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 541-585.
    4. Navas-Ruiz, Antonio & Sala, Davide, 2007. "Technology adoption and the selection effect of trade," UC3M Working papers. Economics we076737, Universidad Carlos III de Madrid. Departamento de Economía.
    5. Paula Bustos, 2011. "Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms," American Economic Review, American Economic Association, vol. 101(1), pages 304-340, February.
    6. Rasmus Lentz & Dale T. Mortensen, 2008. "An Empirical Model of Growth Through Product Innovation," Econometrica, Econometric Society, vol. 76(6), pages 1317-1373, November.
    7. Bee Yan Aw & Mark J. Roberts & Daniel Yi Xu, 2008. "R&D Investments, Exporting, and the Evolution of Firm Productivity," American Economic Review, American Economic Association, vol. 98(2), pages 451-456, May.
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    More about this item


    process innovation; firm heterogeneity; trade policy;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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