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Equilibrium Technology Diffusion, Trade, and Growth

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  • Jesse Perla
  • Christopher Tonetti
  • Michael E. Waugh

Abstract

We study how opening to trade affects economic growth in a model where heterogeneous firms can choose to adopt a new technology already in use by other firms. We characterize the growth rate using summary statistics of the profit distribution—the ratio of profits between the average and marginal adopting firm. Opening to trade increases the spread in profits through increased export opportunities and foreign competition, induces more rapid technology adoption, and generates faster growth. Quantitatively, opening to trade yields large increases in growth, but welfare effects are muted due to loss of variety and reallocation of labor away from production.

Suggested Citation

  • Jesse Perla & Christopher Tonetti & Michael E. Waugh, 2015. "Equilibrium Technology Diffusion, Trade, and Growth," NBER Working Papers 20881, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20881
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    References listed on IDEAS

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    1. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2011. "An Anatomy of International Trade: Evidence From French Firms," Econometrica, Econometric Society, vol. 79(5), pages 1453-1498, September.
    2. Giammario Impullitti & Omar Licandro, 2010. "Trade, Firm Selection, and Innovation: the Competition Channel," Working Papers 495, Barcelona Graduate School of Economics.
    3. Sivadasan Jagadeesh, 2009. "Barriers to Competition and Productivity: Evidence from India," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-66, September.
    4. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1151-1199.
    5. Luis A. Rivera-Batiz & Paul M. Romer, 1991. "Economic Integration and Endogenous Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 531-555.
    6. Jesse Perla & Christopher Tonetti, 2014. "Equilibrium Imitation and Growth," Journal of Political Economy, University of Chicago Press, vol. 122(1), pages 52-76.
    7. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    8. Jesse Perla & Christopher Tonetti & Jess Benhabib, 2014. "The Growth Dynamics of Innovation, Diffusion, and the Technology Frontier," 2014 Meeting Papers 818, Society for Economic Dynamics.
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    More about this item

    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • F00 - International Economics - - General - - - General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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