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Innovation and the Elasticity of Trade Volumes to Tariff Reductions

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  • Rubini, Loris

Abstract

I study the implications of endogenous productivity choices ("innovation") on the effects of trade liberalization. I find that a model with innovation generates an elasticity of trade volumes to tariff reductions that is fifty percent larger than models without innovation, and consistent in magnitude to empirical estimates. To show this, I develop a new model of international trade with innovation, and calibrate it to data on Canada and the United States before the Free Trade Agreement. Feeding into the calibrated model the tariff drop that resulted from the agreement, the increase in the trade volumes is similar to that observed in the data. Without innovation, the change in trade volumes is considerably lower, and similar in magnitude to what existing models without innovation have found.

Suggested Citation

  • Rubini, Loris, 2009. "Innovation and the Elasticity of Trade Volumes to Tariff Reductions," MPRA Paper 21484, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:21484
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    Cited by:

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    2. Nezih Guner & Andrii Parkhomenko & Gustavo Ventura, 2018. "Managers and Productivity Differences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 29, pages 256-282, July.
    3. Diego Restuccia & Richard Rogerson, 2013. "Misallocation and productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 1-10, January.
    4. Julio Cesar Leal Ordonez, 2014. "Tax collection, the informal sector, and productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 262-286, April.
    5. Facundo Piguillem & Loris Rubini, 2012. "International Trade and the Firm Size Distribution," 2012 Meeting Papers 857, Society for Economic Dynamics.
    6. Crespo, Aranzazu, 2012. "Trade, Innovation and Productivity: A Quantitative Analysis of Europe," MPRA Paper 57162, University Library of Munich, Germany.
    7. Jabbour, Liza & Tao, Zhigang & Vanino, Enrico & Zhang, Yan, 2019. "The good, the bad and the ugly: Chinese imports, European Union anti-dumping measures and firm performance," Journal of International Economics, Elsevier, vol. 117(C), pages 1-20.
    8. Dhritman Bhattacharya & Nezih Guner & Gustavo Ventura, 2013. "Distortions, Endogenous Managerial Skills and Productivity Differences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 11-25, January.
    9. repec:fip:fedreq:y:2011:i:3q:p:329-357:n:vol.97no.3 is not listed on IDEAS
    10. Melitz, Marc J. & Burstein, Ariel, 2013. "Trade Liberalization and Firm Dynamics," Scholarly Articles 34557509, Harvard University Department of Economics.
    11. Diego Restuccia, 2011. "Recent developments in economic growth," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 97(3Q), pages 329-357.
    12. Loris Rubini, 2014. "Productivity in Canada During the Auto Pact and the Free Trade Agreement," Documentos de Trabajo 455, Instituto de Economia. Pontificia Universidad Católica de Chile..
    13. Leal Ordóñez, Julio C., 2010. "Informal sector, productivity, and tax collection," MPRA Paper 26058, University Library of Munich, Germany, revised Oct 2010.
    14. Loris Rubini & Klaus Desmet & Facundo Piguillem & Aranzazu Crespo, . "Breaking down the barriers to firmgrowth in Europe The fourth EFIGE policy report," Blueprints, Bruegel, number 744, December.
    15. Alexander McQuoid & Loris Rubini, 2014. "The Opportunity Cost of Exporting," 2014 Meeting Papers 412, Society for Economic Dynamics.

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    More about this item

    Keywords

    innovation; trade liberalization; trade elasticity; international trade;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • 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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