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Globalization and Productivity in The Developing World

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  • Foellmi, Reto
  • Oechslin, Manuel

Abstract

We explore the impact of international trade in a monopolistically competitive economy that encompasses technology choice and an endogenous distribution of mark-ups due to credit frictions. We show that in such an environment a gradual opening of trade may but not necessarily must have a negative impact on productivity and overall output. The reason is that the pro-competitive effects of trade reduce mark-ups and hence make access to credit more difficult for smaller firms (an implication we substantiate using firm-level data from Latin America). As a result, smaller firms - while not driven out of the market - may be forced to switch to less productive technologies. Our framework matches several salient patterns in the empirical literature on the impact of trade in developing countries.

Suggested Citation

  • Foellmi, Reto & Oechslin, Manuel, 2014. "Globalization and Productivity in The Developing World," Papers 713, World Trade Institute.
    • Handle: RePEc:wti:papers:713
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    Cited by:

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    2. Vannoorenberghe, G., 2014. "International trade, risk taking and welfare," Journal of International Economics, Elsevier, vol. 92(2), pages 363-374.

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    More about this item

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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