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Innovation, Firm Dynamics, and International Trade

Author

Listed:
  • Ariel Burstein

    (UCLA)

  • Andrew Atkeson

    (UCLA)

Abstract

We present a general equilibrium model of the decisions of firms to innovate and to engage in international trade. We use the model to study the changes in aggregate productivity that arise as firms' exit, export, process- and product innovation decisions respond to a change in the marginal cost of international trade. Our central finding is that, despite the fact that a change in trade costs can have a substantial impact on heterogeneous firms' exit, export, and process innovation decisions, the impact of changes in these decisions on aggregate productivity is largely offset by the response of product innovation. Our results suggest that microeconomic evidence on individual firms' responses to changes in international trade costs may not be informative about the macroeconomic implications of changes in these trade costs for aggregate productivity.

Suggested Citation

  • Ariel Burstein & Andrew Atkeson, 2009. "Innovation, Firm Dynamics, and International Trade," 2009 Meeting Papers 186, Society for Economic Dynamics.
    • Handle: RePEc:red:sed009:186
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    JEL classification:

    • F1 - International Economics - - Trade
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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