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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: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp223.pdf
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    References listed on IDEAS

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    Cited by:

    1. Giammario Impullitti & Omar Licandro, 2018. "Trade, Firm Selection and Innovation: The Competition Channel," Economic Journal, Royal Economic Society, vol. 128(608), pages 189-229, February.
    2. Paul S. Segerstrom & Ignat Stepanok, 2018. "Learning How To Export," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(1), pages 63-92, January.
    3. Dinopoulos, Elias & Unel, Bulent, 2011. "Quality heterogeneity and global economic growth," European Economic Review, Elsevier, vol. 55(5), pages 595-612, June.
    4. Peter Gustafsson & Paul Segerstrom, 2010. "Trade Liberalization and Productivity Growth," Review of International Economics, Wiley Blackwell, vol. 18(2), pages 207-228, May.
    5. Maemir, H. & Ziesemer, T., 2014. "Multinational production and trade in an endogenous growth model with heterogeneous firms," MERIT Working Papers 2014-038, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    6. Angus C. Chu & Guido Cozzi & Haichao Fang & Yuichi Furukawa & Chih-Hsing Liao, 2019. "Innovation and Inequality in a Monetary Schumpeterian Model with Heterogeneous Households and Firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 141-164, October.
    7. Naito, Takumi, 2017. "An asymmetric Melitz model of trade and growth," Economics Letters, Elsevier, vol. 158(C), pages 80-83.
    8. Thomas Sampson, 2016. "Dynamic Selection: An Idea Flows Theory of Entry, Trade, and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(1), pages 315-380.
    9. Julian Emami Namini & Giovanni Facchini & Ricardo A. López, 2015. "A model of firm heterogeneity in factor intensities and international trade," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 48(4), pages 1456-1480, November.
    10. Angus C. Chu & Guido Cozzi & Haichao Fang & Yuichi Furukawa & Chih-Hsing Liao, 2019. "Innovation and Inequality in a Monetary Schumpeterian Model with Heterogeneous Households and Firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 141-164, October.
    11. 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.
    12. Schröder, Philipp J.H. & Sørensen, Allan, 2012. "Firm exit, technological progress and trade," European Economic Review, Elsevier, vol. 56(3), pages 579-591.
    13. Thomas Sampson, 2013. "Dynamic Selection and the New Gains from Trade with Heterogeneous Firms," FIW Working Paper series 122, FIW.
    14. 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.
    15. 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.

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