Microeconomic flexibility, creative destruction and trade

Arbeitspapier

We investigate whether greater microeconomic flexibility facilitates the process of creative destruction in the context of new trade models with heterogeneous firms (Bernard et al., 2003 and Melitz, 2003). In these models, freer trade increases aggregate productivity because high-efficiency firms expand through exporting and low-efficiency firms exit the market. However, factor reallocation could be negatively affected by the presence of microeconomic frictions. We use these insights of the theory to analyze whether a reduction in trade costs increases the probability of becoming an exporter relatively more in industries with greater microeconomic flexibility and whether plant exit driven by trade costs declines is more likely in industries with lower frictions. Using plant level data from Venezuela, we report results supporting these predictions.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IDB Working Paper Series ; No. IDB-WP-150

Classification and Topics

• Classification: Wirtschaft ; Trade Policy; International Trade Organizations ; Empirical Studies of Trade ; Microeconomic Analyses of Economic Development
• Subject: Trade costs ; microeconomic frictions ; resource reallocation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Blyde, Juan ; Pineda, José
• Event: Veröffentlichung
• (who): Inter-American Development Bank (IDB)
• (where): Washington, DC
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/115546
• Last update: 10.03.2025, 11:44 AM CET