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Market Size, Trade, and the Resistance to the Adoption of Better Technology

Author

Listed:
  • Klaus Desmet

    () (Department of Economics Universidad Carlos III)

  • Stephen L. Parente

Abstract

Why is the adoption of more productive technologies more fiercely resisted in some societies than in others? This paper examines the role of market size and free trade in determining whether firms or workers resist the adoption of more advanced technologies. It puts forth a model whereby the price elasticity of demand for each industry's product is an increasing function of the economy's population size. A more elastic demand lowers the resistance to technology adoption because the drop in the price of the industry's output that follows the adoption of a cost-saving technology is associated with a larger increase in industry's revenue. We demonstrate this mechanism numerically and provide empirical support for this theory.

Suggested Citation

  • Klaus Desmet & Stephen L. Parente, 2006. "Market Size, Trade, and the Resistance to the Adoption of Better Technology," 2006 Meeting Papers 264, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:264
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    File URL: http://repec.org/sed2006/up.9328.1139505146.pdf
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    References listed on IDEAS

    as
    1. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 295-316.
    2. Francisco Alcalá & Antonio Ciccone, 2004. "Trade and Productivity," The Quarterly Journal of Economics, Oxford University Press, vol. 119(2), pages 613-646.
    3. Thomas J. Holmes & James A. Schmitz, 1998. "A gain from trade: more research, less obstruction," Staff Report 245, Federal Reserve Bank of Minneapolis.
    4. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1181-1222, December.
    5. Rodrigues, Mauro, 2010. "Import substitution and economic growth," Journal of Monetary Economics, Elsevier, vol. 57(2), pages 175-188, March.
    6. Romain Wacziarg & Karen Horn Welch, 2008. "Trade Liberalization and Growth: New Evidence," World Bank Economic Review, World Bank Group, vol. 22(2), pages 187-231, June.
    7. Yeaple, Stephen Ross, 2005. "A simple model of firm heterogeneity, international trade, and wages," Journal of International Economics, Elsevier, vol. 65(1), pages 1-20, January.
    8. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    9. David Hummels & Volodymyr Lugovskyy, 2005. "Trade in Ideal Varieties: Theory and Evidence," NBER Working Papers 11828, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Technology Adoption; Resistance; Trade; Ideal Varieties;

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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