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Trade and Firm Heterogeneity In A Quality-Ladder Model of Growth

Author

Listed:
  • Tetsugen Haruyama

    (Graduate School of Economics, Kobe University, Japan)

  • Laixun Zhao

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

The present paper explores the effect of trade liberalization on the level of productivity as well as the rate of productivity growth in an R&Dbased model with heterogeneous firms. We introduce new and plausible features that are absent in existing studies. First, technical progress takes the form of continual quality improvement of products over time. Second, firm entry and exit are endogenously determined due to creative destruction of products traded. In this framework, we demonstrate that a lower transport cost or export sunk cost unambiguously reallocates resources from non-exporting industries to R&D as well as exporting industries. This means that trade liberalization increases the level of manufacturing productivity and the rate of technical progress. These results are found to be robust in an extended model with population growth without scale effects. In extensions of the basic model, we also endogenize the ex ante distribution of firm heterogeneity and examine the effect of R&D subsidies.

Suggested Citation

  • Tetsugen Haruyama & Laixun Zhao, 2008. "Trade and Firm Heterogeneity In A Quality-Ladder Model of Growth," Discussion Paper Series 223, Research Institute for Economics & Business Administration, Kobe University.
  • Handle: RePEc:kob:dpaper:223
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    File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp223.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Giammario Impullitti & Omar Licandro, 2010. "Trade, Firm Selection, and Innovation: the Competition Channel," Working Papers 495, Barcelona Graduate School of Economics.
    2. Segerstrom, Paul & Stepanok, Ignat, 2010. "Learning How to Export," SSE/EFI Working Paper Series in Economics and Finance 0727, Stockholm School of Economics, revised 16 Sep 2013.
    3. Dinopoulos, Elias & Unel, Bulent, 2011. "Quality heterogeneity and global economic growth," European Economic Review, Elsevier, vol. 55(5), pages 595-612, June.
    4. Maemir, H. & Ziesemer, T., 2014. "Multinational production and trade in an endogenous growth model with heterogeneous firms," MERIT Working Papers 038, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    5. NAITO Takumi, 2016. "An Asymmetric Melitz Model of Trade and Growth," Discussion papers 16079, Research Institute of Economy, Trade and Industry (RIETI).
    6. repec:eee:ecolet:v:158:y:2017:i:c:p:80-83 is not listed on IDEAS
    7. Sampson, Thomas, 2014. "Dynamic selection: an idea flows theory of entry, trade and growth," LSE Research Online Documents on Economics 60363, London School of Economics and Political Science, LSE Library.
    8. Dinopoulos, Elias & Unel, Bulent, 2013. "A simple model of quality heterogeneity and international trade," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 68-83.
    9. Thomas Sampson, 2014. "Dynamic Selection: An Idea Flows Theory of Entry, Trade and Growth," CEP Discussion Papers dp1288, Centre for Economic Performance, LSE.
    10. Schröder, Philipp J.H. & Sørensen, Allan, 2012. "Firm exit, technological progress and trade," European Economic Review, Elsevier, vol. 56(3), pages 579-591.
    11. 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.
    12. Thomas Sampson, 2013. "Dynamic Selection and the New Gains from Trade with Heterogeneous Firms," 2013 Meeting Papers 125, Society for Economic Dynamics.
    13. repec:eee:eecrev:v:98:y:2017:i:c:p:392-409 is not listed on IDEAS
    14. Wolf-Heimo Grieben & Fuat Sener, 2012. "North-South Trade, Unemployment and Growth: What’s the Role of Labor Unions?," Working Paper Series of the Department of Economics, University of Konstanz 2012-06, Department of Economics, University of Konstanz.
    15. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi & Liao, Chih-Hsing, 2017. "Inflation and economic growth in a Schumpeterian model with endogenous entry of heterogeneous firms," European Economic Review, Elsevier, vol. 98(C), pages 392-409.
    16. Thomas Sampson, 2013. "Dynamic Selection and the New Gains from Trade with Heterogeneous Firms," FIW Working Paper series 122, FIW.

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